We have come to the beginning of the year 2022 with many of us wondering what the New Year will offer. The market has been on an unprecedented bull run since November 2020 which marked the start of the previous samvat. Whether the next year will be as fruitful as the previous one for the stock market is something that remains to be seen.

The investor has to be prepared for any unprecedented situation in the New Year. Investors can look at below mentioned options to wade unnecessary risks in stock market.

Need for diversification

As the current bull run is disjointed from economic realities on the ground, one of the key questions haunting investors is how long it will last. This brings into focus the need to diversify your investments. Diversification will ensure that a market downturn will not wipe out your entire investment, but only affect your equity holdings. Other assets like FDs, bonds and real estate will remain unaffected by the movement.

Safe investment options

Real estate, bonds, PPF, gold, and bank deposits are some assets you may consider for diversifying your investments in 2022. However, it is important to understand the nature of each asset. At 2-3 percent rental yields, returns from residential real estate in India are among the lowest globally. Government bonds and PPF offer 6-8 percent annual returns, which is marginally above the inflation rate.

Bank deposits are fetching a nominal return of 5 percent per annum, but with tax deductions on the interest income, the actual returns could be well below the rate of inflation. And while gold is a safe instrument to secure your wealth, it is hardly the best means of growing your portfolio.

Fractional investment as a solution

Fractional ownership of commercial property is an option you should consider for the new year if you are looking for a safe investment option along with handsome returns. It allows you to invest in pre-leased commercial properties in ticket sizes of Rs 25 lakh, thereby making commercial real estate investments affordable to the retail investor.

With rental yield of 8-10 percent annually, capital appreciation of 5-10 percent per year, and rent escalation of 15 percent every three years, it is one of the safest investment options offering better returns than many of its competitors.

One of the biggest reasons why fractional ownership is considered safe is that tenants are required to enter into a fixed lease agreement of five to seven years. This makes it immune to market fluctuations and economic cycles and ensures regular rental income and capital appreciation for investors.

Leading fractional property investment platforms like hBits deal only in pre-leased commercial property thus ensuring returns for investors from Day One itself. Additionally, each property is vetted against multiple parameters prior to listing including credit worthiness of the tenant, builder reputation, lease agreement, IRR, location, asset worthiness and so on. Due diligence by expert professionals and evaluation of the property on multiple parameters are some other factors that make fractional ownership a safe option for long-term investment.

With strong sourcing across top cities through relationships with developers and local brokers, fractional investment platforms are able to gain access to the best Grade A assets. Each property is then assessed by Tier 1 law firms to mitigate legal risk.

The returns game

Return-wise, an investment of Rs 25 lakh in fractional ownership will fetch you Rs 10 lakh in rental income over five years (2 lakh x 5 years at 8 percent rental yield), while your capital will grow by Rs 6.9 lakh (at an assumed capital appreciation rate of 5 percent annually). Hence you will get total returns of Rs 16.9 lakh and maturity amount of Rs 41.9 lakh on your investment.

In comparison, an FD of Rs 25 lakh will fetch you around Rs 32 lakh (at 5 percent interest rate) while PPF and bonds would also give modest returns. Gold can help you protect your wealth but lacks the dual benefits of income and capital gains that fractional investments offer.

Taking all things into account, fractional ownership can be a great investment for you for Samvat 2078. Not only will it help you diversify your portfolio, but it will also help you grow your wealth and protect your investments from market fluctuations.

The author, Shiv Parekh, is the founder of hBits. The views expressed are personal

First Published: Dec 20, 2021, 06:47 PM IST