INVESTMENT 2000: OVERVIEW

Lemon! That's what your investment could be. Stocks are capricious; debt, stolid; real-estate, shaky; and bullion, boring. Here's how to squeeze out adequate returns from your portfolio.

Rubia and Siraj are a quintessential yuppie couple. Siraj, 30, is a successful management consultant, while Rubia, 28, is a rising star at a blue-chip FMCG transnational. They live with their two children in an apartment in a Mumbai suburb. Their garage houses a Honda City and an Indica. Life's been good so far for the two and may well get better. Yet, sometimes there's a niggling worry that gets to both of these young achievers. That's when they think of the future: theirs and that of their two young kids.

Yes, you're right. We're talking about investment. How do they deal with the multitude of choices that confront them? How much should they set aside for their three-year-old son's future studies abroad? Or for their six-month-old daughter who may want to start her own business when she's 22? How should they go about tax planning? And, above all, how on earth can they juggle their jobs along with all these investment related issues? Invariably, whenever Siraj and Rubia think of these things, they end up getting stressed out.

It's much easier for Arnab Das, 55, to plan his investments. Arnab took huge risks to make and save money so that he could achieve financial independence. Now his objectives are far less complex than Siraj and Rubia's. He merely has to invest wisely. His only son, an engineer, works abroad. For Das, therefore, it makes sense to tuck away a chunk of his disposable income into income funds and pension plans offered by Prudential ICICI, Kotak Mahindra, DSP Merrill Lynch or Templeton Asset Management. Of course, the grey-haired Das' investment wisdom to couples like Siraj and Rubia is a pithy one: start investing early so that you have the time to recover from your early mistakes.

If you are like our yuppie duo or are close to superannuation or somewhere in between socking away an eye-popping 45 per cent of your income each year and yet to decide on how to get your portfolio in shape for 2000-01, how do you resolve the problem of allocating your savings? How much do you put in equities? How to rebalance your mutual fund portfolio? BT's Investment Special provides a guide on where to put your money in 2000.

For the individual investor, putting money in equities has become riskier than before. The stockmarkets have been fluctuating wildly. Says Deepak Mohoni, 44, Investment Advisor: ''We have been alternating between buying and short selling recommendations every day, as the market changes direction.'' That's anything but reassuring. Yet, over the long haul, stocks are the best performing asset class-risky, yet potentially rewarding. So, if you are a savvy investor, ride the current volatility and you may reap the benefits. Finance companies like Birla Sun Life are offering loans three times your investments to encourage investors to pick up when the market is falling rather than invest in the market at the peak. But remember: it is as important to know what stocks to sell as to know the ones to buy.

It could be safe to return to debt. You may have sidelined investments in fixed income products in 1999, because of the stockmarket boom. But now, it could be time to shift to debt instruments, which are relatively low-risk fixed income investments. The dampener in the debt market, however, has been the one per cent cut in the bank rate to 7 per cent on April 1, 2000. That translates into a corresponding cut in fixed deposit rates.

However, interest rates seem to have bottomed out. Says R. Ravimohan, 42, CEO, CRISIL: ''I think there is a great potential for interest rates to go up.'' The reason: likely ebbing of foreign direct and foreign portfolio investment inflows and volatility in the stockmarkets will force the RBI to be less benign on the liquidity front. Says S.K. Mitra, 52, Director (Financial Services), Aditya Birla Group: ''To invest in long-term debt instruments at this time is risky. It's better to look for short to medium term options.'' One such avenue could be government paper of five to 10-year tenure. Suggests Sanjoy Choudhary, 30, Head Of Research, Credence India: ''Government securities requiring a minimum investment of Rs 10,000 could be the best option for retail investors, with the government taking steps to remove hassles in buying gilts.'' Of course, you could choose to go in for debt mutual funds, which invest only in fixed income securities.

For dual-career families, who do not have the time to differentiate between the ''horses and the mules'' in terms of investment, it may be better to park your savings in mutual funds, letting the fund managers do the investing. During the past year, while the stockmarkets soared, small retail investors were seen shoveling piles of savings into mutual funds-an average of Rs 5,103 crore per month. But when the markets did a U-turn in April, investors acted emotionally and redeemed their holdings from equity mutual funds.

Now, when the markets are volatile with bearish bull undercurrents, for those who have a large portion of their retirement savings in equity mutual funds, it is the right time to rebalance their mutual fund portfolio. Says R. Sreesankar, 36, CIO, DSP Merrill Lynch: ''Mutual funds are the best option for investors, not only to protect the capital but also to benefit from the upside of the equity markets.''

Budget 2000 has been a mixed bag for mutual fund investors. The tax rate on the distributed income of mutual funds (other than equity oriented funds) has been hiked from 10 to 20 per cent. Till Budget:2000, debt oriented funds were, by and large, paying between a 10 and 12 per cent annualised dividend, which worked out to a pre-tax return of 14.9 per cent to 17.9 per cent, based on the income tax rate of 33 per cent for individuals. The Budget has increased the surcharge and raised marginal tax rate for individuals in the higher tax bracket to 34.5 per cent.

Still, the adverse impact is softened by the proposal to accord mutual fund units a long-term capital gains tax at 10 per cent without indexation and 20 per cent after indexation. Says Vijay Venkatram, 34, Manager (Private Banking) HSBC: ''Debt-oriented investors for whom regular income and, therefore, dividends is not a consideration and who have a longer term perspective, should look at the growth option of the debt-oriented funds. Returns will be more tax-efficient than the dividend option.'' Of course, it all depends on your risk-return profile, which will dictate the right combination of funds for you (See mutual fund metrics: balance is everything).

Shailesh and Suma, the other family that BT's Investment Special tracks, want to buy a house this year. And it may be a good idea to do that. The prospects for investing in real estate are set to improve with the sops to housing in the Budget:2000. The tax deduction limit on the interest payable on housing loans has been raised from Rs 75,000 to Rs 1 lakh. Investors should also check out the housing finance schemes that are offering packages to suit individual needs.

Typically, real estate prices are linked to the stockmarket. When the markets boom, real estate prices move northwards. But although the stockmarkets may have crashed recently, we probably won't be living with the bear in the rest of 2000. And that's probably why buying activity in the real estate market is continuing unabated. Says Sudhanshu Tandan, 42, Associate Director, CB Richard Ellis, international property consultants: ''For those dreaming of buying a house, this is the right time to invest. Prices are expected to see an upswing over the next 6 to 9 months.''

So what's it going to be, dear investor? Stocks? Debt? Mutual funds? Real estate? Or would you prefer good old-fashioned gold? BT's Investment Special takes you on a tour to find out what suits your risk-profile the best. Enjoy the trip.