Fixed deposits, bonds, real estate: Where to invest now?

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Below is the verbatim transcript of Vaid's interview with CNBC-TV18.

Q: Post the recent Reserve Bank of India's curbs, the opinion is that the money would start flowing from bonds into fixed deposit (FDs). So, now everyone will redeem their bonds and move them back into the safe haven which is FDs. There are number of corporate bonds being introduced at this time but what would your recommendation be on where one should be putting in money?

A: Usually the reaction happens post the event and which is what is going to be the case at most of the individual family level. I do not know whether that would be the right strategy because whatever the surprise action by RBI was to happen has happened and now post that event if one move out of the existing bond fund where one has already incurred losses and move into fixed income or fixed maturity instrument like fixed deposit bond, I do not think that will be a good strategy because one cannot be a reactive investor. One has to have a strategy in mind and stay Put and carry it through and even after this event if one is in existing bond funds whether short-term, long-term the chances of having a capital erosion over a longer period of time is almost negligible.

In most of the bond funds because of these events, initially one will have negative return but the carry comes in and that carry helps to generate returns over a period of time. So, my advice to investors who already exist in bond funds is not to redeem and now look at any kind of other instruments like FD. Stay put, recoup returns and then think about what risk appetite is to the volatility and then decide for future accordingly.

Caller Q: I had bought a property in 2000 and sold it in 2013. Now I want to buy new property. Therefore, want to know within how many years should I purchase it and what will be the tax implications?

A: Since you mentioned that you had this property from 2010 so you will be applicable for long-term capital gain tax and within that if you use indexation, which is the inflation impact, you will get 20 percent long-term capital gains tax with the indexation benefit thrown in. So, in my view it will not be a big tax on you because it has been helpful for a long period of time.

You are also looking to buy a property. So, if you buy a property within two years of selling the earlier property then you do not need to pay capital gain tax because proceeds of property if reinvested again in property, this tax gets planned much better. So, our suggestion will be since you are looking at property, stay Put with the property itself because property as an asset class has done well. Whatever said and done in India over last two-three decades, that is one asset class which has consistently performed and looking at India demography and the kind of demand supply gap it, it will continue to remain to be a good investment. So, continue to look at property.