Cryptocurrencies have generated big interest amongst widespread investors lately. But the intense volatility has left them questioning no matter if cryptocurrencies be a portion of their investment portfolio or not. Personal Finance professionals advise against jumping to the crypto wagon at a time when there is no regulatory clarity and any sense of stability about the rates of all crypto tokens. However, the crypto business insiders are enthusiastic about allocating some portion of one’s portfolio to cryptocurrencies.
As per the information from cryptocurrency exchanges, practically 1.5 crore Indians hold Rs 15,000 crore worth of cryptocurrency assets in India. The rates of lots of cryptocurrencies have skyrocketed in the previous six months. Bitcoin was the best-performing asset class of FY 2020-21, getting delivered returns of more than 800%. However, cryptocurrencies are hugely volatile and lately crashed by 30% in just one week.
As the debate on the merits and demerits of investing in cryptocurrencies continues, FE Online talked to quite a few professionals to get a view on no matter if cryptocurrencies must be a portion of an investor’s private finance portfolio or not.
Tax and Investment professional Balwant Jain advised against investing in cryptocurrencies. “It (cryptocurrency) is not backed by either tangible thing or sovereign guarantee so would advise not to invest,” Jain told FE Online.
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Rachit Chawla, Finway FSC CEO and Founder, also stated he would not advocate such as crypto in the portfolio mainly because of its ambiguities. “I don’t recommend at this time that crypto should be a part of a personal finance portfolio because there is a lot of ambiguity around it. RBI is not allowing investors so putting money and buying this asset class is one thing but what is the exit? There is no policy framework, especially for a country like India which is governed by RBI,” stated Chawla.
Too volatile to be named an asset
“In the absence of any framework, it gets very difficult for such an asset class but still of people would want to buy it, it will restrict themselves from using only 1 to 2% of their total liquid portfolio in equity not more than that because cryptos are too volatile in nature. Anything which goes 10% up in one day and 10% minus in one day should not be considered as an asset. It is too volatile to be called an asset,” he added.
What to look at if you want to invest?
Despite the apparent dangers connected with crypto investments, advertisement blitz, word of mouth campaigns and the lure of swift returns are driving lots of people today towards crypto investment. Archit Gupta, Founder and CEO, ClearTax, shared points you must look at ahead of creating cryptocurrencies a portion of your private finance portfolio.
- Cryptocurrencies are appropriate for aggressive investors who comprehend the threat involved with the investment. It’s equivalent to investing in penny stocks, which may well give incredibly higher returns in a brief time, or you could shed the complete quantity invested in them.
- Cryptocurrencies are not legal tender in India. You could wait till clarity emerges about regulation and taxation ahead of such as cryptocurrencies in your private finance portfolio. There are situations exactly where a lack of regulation in gold loans and microfinance have led to a crisis.
- Individuals who are 1st-timers in cryptocurrencies could invest by way of the systematic investment program or SIP. It staggers the investment in cryptocurrencies more than time, thereby lowering the price of buy.
- Individuals who need to invest in cryptocurrencies could allocate 1%-2% of their portfolio to them. You need to under no circumstances borrow and invest in cryptocurrencies for the private finance portfolio. Investing in cryptocurrencies is equivalent to penny stocks, exactly where you invest funds (play funds) you can afford to shed.
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Diversification essential to creating wealth
Edul Patel, Co-founder & CEO of crypto trading platform Mudrex, gave a “resounding yes” to investing in cryptocurrencies. He stated, “Diversification is the key to building wealth over a long period of time. Building wealth needs to be considered a marathon, and not a short sprint. Cryptocurrency as an asset class offers the much-needed alpha to the portfolio, and at the same acts as a moat.”
“All investors need to consider this fact and invest a part of their capital into cryptocurrency with a long term horizon. Considering the volatility, most large investors are currently allocating 3-5% of their net worth to crypto as an asset class and the number is consistently growing,” Patel added.