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Since eternity gold has been considered a safe haven: it is the investment class everyone turns to when the economy and the stock markets are not doing well. Its negative correlation with other asset classes makes gold all the more attractive. Last year was particularly good for this asset class. The yellow metal was among the most wanted asset classes as it surpassed returns generated by all other asset classes. During the last two years,the value of gold has grown by a compounded annual growth rate (CAGR) of 27.13 per cent,while CAGR for last year stands at 18.70 per cent.

Outlook for this year. Is gold expected to give high returns this year as well? Gold analyst Bhargav Vaidya feels that gold has had its bull run and is likely to see some correction this year. We are near the top and the price of gold is unlikely to go up from here. Hereon,I expect gold to correct by at least Rs 1,000 in about 45 days, says Vaidya. Investors should not expect glittering returns from gold this year. Last year was more of an aberration from reality. Going forward,investors should not expect a rate of return that is more than 1 per cent above the inflation rate, he adds.

According to Madan Sabnavis,chief economist,NCDEX,gold will show considerable volatility this year. Gold will be particularly volatile this year since all the factors that affect the price of gold will themselves be susceptible to fluctuation. Further,alternative avenues for saving will also be on a rollercoaster with both the equity and the bond markets witnessing considerable swings. Hence,gold is expected to show considerable volatility in both directions, he says.

How much to allocate. Despite golds poor outlook for the coming year,financial planners suggest that a part of your savings should be consistently invested in this asset class. One,such consistent purchases will help you accumulate enough gold in case you have a daughter and might need the yellow metal at the time of her a marriage. Besides,it will provide protection against inflation,and offer good returns in the years when the stock markets dont do well.

However,investors should not allocate more than 5-10 per cent to gold,cautions Surya Bhatia,a Delhi-based financial planner. The price of gold is at its peak. We expect the price of gold to remain volatile and investors should not expect great returns from this asset class this year. The best way to invest in this category is through gold exchange traded funds (ETFs), says Bhatia.

Real estate: long road to recovery

Although investment in this asset class has been the prerogative of the ultra-rich,now middle and upper-middle class investors too have started investing aggressively in this sector. Increasing disposable income and easy availability of loans have fuelled investment demand in realty.

There is huge latent demand for real estate. In the residential segment alone,there is a shortage of 20 to 30 million dwelling units across the country. But the real issue is of affordability. During the last upswing in the sector,developers focused mostly on building luxury housing,for which demand is limited. Now they have turned their attention to affordable housing. Together with declining interest rates,this should help revive demand in this sector.

Real estate prices rose between 2004 and Q1 2008. During these years,an investment in real estate would have given you an annual return that would have ranged from 30 per cent to 50 per cent annually. Thereafter,from Q2 2008,prices began to head southward due to a variety of factors: the decline in the stock market (which created a negative wealth effect),rise in interest rates,and a slowing economy that led to job losses in urban areas. Prices have now plateaued.

Outlook for this year. The outlook for the current year does not look too bright. The sector is showing signs of stability now. We do not foresee a substantial rise in prices this year. Investors can expect 5 to 7 per cent returns this year in select pockets, says Gautam Hora,vice president and head (west India capital markets),Jones Lang Lasalle Meghraj.

Financial advisors suggest that 20 per cent allocation should be made to this segment.

Debt funds: mixed prospects

Like gold,this category too generated blistering returns last year. Owing to declining interest rates,long-term debt funds generated as high as 15 per cent returns and short-term funds yielded 7-9 per cent (category average returns).

Outlook for this year. The outlook for this category too is mixed. Returns in this category are directly linked with interest-rate movements. Debt funds can be broadly classified into four categories: long-term government paper,long-term non-government paper,short-term government paper and short-term non-government paper.

Ashutosh M Wakhare,a Mumbai-based financial trainer,does not expect good returns from this category. With high fiscal deficit,long term yields will remain to have an upward bias thereby putting a downward pressure on bond prices. As for the short term paper,since the RBI is expected to have a soft monetary policy stance,even short term rates are expected to remain benign. Hence debt as a category (long term as well as short term) is unlikely to deliver attractive returns over the next 1 year horizon, says Wakhare.

Manish Kumar,senior vice president and head (investments),ICICI Prudential Life,expects short-term corporate debt to do well. With 300 to 350 basis point reduction in interest rates to date,we expect high single digit return from corporate debt this year. Overall,corporate debt still looks attractive and is likely to give good returns over the long term, says Kumar.

Adds Lakshmi Iyer,head (fixed income and product),Kotak AMC: We can divide the debt fund category into two: short and long term. In the long-term category,we certainly do not expect the kind of returns we generated last year. Returns from short-term debt are vulnerable to liquidity and interest-rate risk. We do not expect an upward movement in interest rates. Therefore,we expect short-term debt to continue giving good returns.

Allocation to this category depends on your risk appetite.

Art: consistent performer

Art,although a very popular investment class in the West,hasnt found much favour with Indian investors yet. The people who buy art are more of connoisseurs rather than investors. However,this investment class holds huge potential.

Art as an investment is suited only for high net worth individuals (HNIs) who have the holding capacity for at least three to four years. New collectors should focus on aesthetics and history,and financial gains will take care of themselves, says Neville Tuli,founder-chairman,Osians.

Like any other asset class,art too goes through cycles. Art usually follows equity markets. When people make profits in equities,they invest in art. And therefore,when there is a slump in equity markets,you are likely to see a downward trend in this category as well, says Bhatia.

Art is relatively illiquid. However,it is likely to fetch positive returns over time if liquidated under conditions of choice rather than under duress. Usually,high-quality art is a stable medium to long-term asset. Apart from capital appreciation,art could also offer regular returns if rented out. However,in India this market is yet to take off.

Outlook. Going by the expert view,this category is expected to give good returns if you buy now. If you continue to buy high-quality modern and contemporary art,you will rarely go wrong. Especially,during present times,the opportunities to buy exist,but they will once again become scarce as soon as confidence returns, says Tuli.

The best place to buy high-quality art is from top-quality auction houses and art galleries. One should make sure that all transactions are totally in cheque with full provenance,authenticity and legal title documents, says Tuli.

Besides,there are three golden rules that a budding art investor should take note of: know the artist you plan to buy,know the price to pay,and know the price to sell.

Financial advisors suggest a 10 per cent allocation to this category.

Bottomline

While there is no thumb rule for a perfect portfolio,calibrate your choices with your financial goals to create a portfolio that suits your needs best. And just as you visit your doctor periodically for a check up,you should also revisit your portfolio from time to time to ensure that it is in good health. u

suneeti.ahujaexpressindia.com