Budget 2020

Can cryptocurrency help in creating wealth for the long term?

I am a 20-year-old student of finance. I have been investing in equity and fixed assets for about a year. I want to explore other asset classes as well. Should I consider cryptocurrency? If yes, then how do I go about it? What would you suggest I do to create wealth for the long term?

Jayant R. Pai, CFP and Head – Products, PPFAS Mutual Fund replies: It’s good to know that you are on the road to wealth creation from a young age. While cryptocurrency has proved to be one of the means to amass wealth in the recent past, there are at least two points you should remember before adding it to your portfolio:

  • The price volatility inherent in the leading names far eclipses those of other mainstream asset classes. Do you have the stomach and financial strength to ride such cycles?
  • Indian regulators have been displaying some ambivalence on whether to permit Indians to actively trade/hold such currencies. Though it has seemingly been ‘resolved’ for now, any adverse future developments may result in you getting saddled with an illiquid asset. At the risk of sounding old-fashioned, I suggest you continue to stick to a judicious mix of equities and fixed income for the foreseeable future.

I am 26. Through monthly SIPs, I invest in the following funds. Rs 5,000 in SBI Small Cap, Rs 10,000 in Tata Digital India, Rs 10,000 in IDFC Nifty, Rs 2,500 in Mirae Asset Emerging Bluechip and Rs 5,000 in ICICI Commodities. Do I need to realign my portfolio?

Vidya Bala, Co-Founder, PrimeInvestor.in replies: Your portfolio looks fine in terms of the quality of funds. However, you have 70% of your SIPs in high-risk small-cap, aggressive or thematic funds. Such a portfolio can suffer steep losses in a market correction. You will do well to add some flexi-cap funds and reduce exposure to small-cap and thematic funds. Also, if you do not hold other fixed-income options, consider at least traditional options like PPF, besides some short-duration debt funds from the banking and PSU space.