To be clear, if a complete financial noob asks me for a safest way to put their small amount of money, I’d just suggest diversified FD and/or diversified liquid funds that invest in sovereign assets only, not equity and F&O. However, The asker is a F&O trader and the money is significantly above the DICGC insurance limit. People generally underestimate the risk associated with debt. That’s my main point of contention. Risk with F&O is well known and apparent, but risk associated with debt funds is not so much and well hidden relative to F&O.
Fraud on the part of AMC is still relevant, while I consider it safe, but still not zero. That’s why diversifying even within the same asset class is not a bad idea. Negative return is also relevant.
Again, since people underestimate risk of debt, they invest/park their funds disproportionately more in debt. Concentration in any asset is indeed risky. But what’s actually more common is people allocating more funds in debt. Like what percentage of Indian savings go into debt/FDs rather than equity or more productive business or F&O. I read it’s 90%. That amplifies the credit/default risk and the negative return risk multifold.
Yeah. No… Hard to believe data from the government, which hides data and hates criticism. Not just me, The markets don’t believe it either. Markets aren’t reacting like we are growing fast or that GDP is that high or that inflation is that low. The only thing that the government cannot control without significant cost to itself is the exchange rate. Everything else can be cooked up. Even when the fed cut rates, and dollar weakened, rupee weakened further making another ATH… We do know inflation contributes to currency depreciation. Whether that’s a significant factor, we can’t say without independent data.
Maybe it’s because it is actually high.
Again, as a proportion, profit makers as very low. So it’s a well known fact that F&O players make negative return… But not many who invest in FDs or debt know much about inflation or that their real return is negative. That’s what’s subtle about it. A subtle disease is worse than something which causes immediate pain and forces you to stop/go to the doctor or change something. F&O might be painful, but it stops most people fast. Very few continue and those that are profitable make the necessary changes. Also, in case of most F&O players, even if they make 0.1%, the underlying margin is already invested in equity or debt, in both cases the return is over and above the underlying return. Almost no one plays with just huge plain cash.