One cannot be completely lopsided in any asset class irrespective of what returns may be offered, says CIO-Fixed Income & Head-Products, Kotak Mutual Fund.
Do you think we are seeing a structural shift in the direction of fixed deposits and the interest rates they offer considering that we are now in the middle of a pandemic and banks have no real reason to increase fixed deposit rates right now?
Interest rate follows a particular cyclical pattern and the longevity of the cycle is a function of how intense is that particular event or a crisis. In this particular case, it is a medical emergency to which the financial world is reacting. It looks like it is going to be slightly more long drawn because we are in a phase characterised by significant liquidity which is chasing far too few assets and that means all of us together are pumping in more money into the banking system and the banks are not on lending at the same pace at which they are accruing deposits.
Therefore, it looks like this is going to be slightly more prolonged as we see liquidity in the banking system which is not likely to abate anytime soon.
Fixed income is not going to get you anywhere?
There is no doubt that one needs to have coexisting portfolios comprising equities and fixed income assets. One cannot be completely lopsided in any asset class irrespective of what returns may be offered. In the last couple of years, equities have not been good but at the same time, fixed income kind of skyrocketed.
The question which one needs to ask is there is if equities are meant for two years or for one year? The answer is no but yes fixed income does offer solutions for one day, one year or 10-years. It offers solutions across the investment bucket. So, it is a relative tradeoff depending on your risk appetite and depending on that you need to plan your entire investment basket and clearly refrain from short-termism.