With a 66% return for investors this year in India, silver has outperformed most asset classes in 2010.
But that doesn't mean you should rush to buy silver coins in the New Year. If anything, the recent steep gains should be cause for skepticism about the potential for further profits. "Maybe the story is already over, we don't know," says Narendra Kondajji, director of Procyon Financial Planners Pvt. Ltd. in Bangalore.
Besides, Mr. Kondajji says that like other precious metals silver can be hard to sell on short notice, so risk-averse investors should limit their exposure to commodities. "For a common investor, the major option to create wealth is investing in equities," says Mr. Kondajji.
Here's a look at how some popular investments fared in 2010:
Stock Indexes: 16% to 17%
If you had invested in an index of India's leading stocks at the beginning of the year, you would have earned a return of 16% or 17%.
The UTI Master Index Fund, which invests in the 30 stocks that comprise the Bombay Stock Exchange's Sensitive Index or Sensex, was up 16% through Wednesday.
If you had bought the Benchmark Nifty BeES, an exchange-traded fund which tracks the returns of the S&P CNX Nifty Index, you would have earned 16.6%.
Stock Mutual Funds: 14.4%
Most individual investors prefer to buy one of those funds in which money managers attempt to beat the Sensex of Nifty or some other index. How have these done?
The average mutual fund which invests in stocks of large Indian companies was up 14.4% through Monday, according to data from research firm Morningstar India Pvt. Ltd. Of course, this means that some mutual funds did very well, while others did poorly.
One of the best-performing funds in Morningstar's large cap stock fund category was the HDFC Equity fund, which gained 27% in 2010. One of the worst-performing in the year was the Reliance Equity fund, which lost 1.3%.
A spokesman for the fund's money manager, Reliance Capital Asset Management Ltd., declined comment.
Balanced Mutual Funds: 6% to 12%
These are mutual funds which invest in both stocks and bonds. These funds are meant for risk-averse investors because bond prices don't swing as sharply as stock prices. On the other hand, lower risk means that these funds provide lower returns than pure stock funds.
A typical balanced fund which invests around two thirds of its money in stocks and one third in bonds, gained 12% this year, according to Morningstar. Meanwhile, funds which invest only up to 25% in stocks and the rest in bonds were up on average 6%. These funds are often called "Monthly Income Plans."
Bond Mutual Funds: 4% to 5%
Mutual funds which invest in short-term bonds gained an average of 4.5% this year. Medium-term bond funds, which often have the word "income" in their name, gained 5.1%.
Bond funds are used by investors as a substitute for bank fixed deposits, partly because returns on them are not subject to income tax whereas interest on fixed deposits is taxable. However, these funds are more volatile than fixed deposits.
Bank Fixed Deposits: 6.5% to 7%
At the beginning of 2010, one-year fixed deposits typically paid 6.5%. As interest rates have gone up lately, returns in 2011 will be higher. A one-year fixed deposit from ICICI Bank currently pays 7.75%, while the same from Bank of Baroda pays 8%.
Gold: 20%
A gold bar of 99.9% purity gained 23% through Tuesday, according to the Bombay Bullion Association. However, this return doesn't reflect the cost of buying, storing and selling the gold bar.
To avoid the hassle of safe-keeping etc., investors have lately been buying gold ETFs. These trade on a stock exchange like a stock, and are held in an electronic account in the investor's name. The ETF-provider buys physical gold proportionate to your investment and keeps it in a bank vault.
Benchmark's Gold BeEs ETF gained 19.6% for the year through Tuesday.
Prithviraj Kothari, president of the Bombay Bullion Association, expects gold prices to remain strong in 2011, but adds that an increase in interest rates in the U.S. could affect the demand for gold.
Silver: 66%
Silver prices in India rose 66% this year on the back of huge demand from global investors looking to make quick money on commodities. Prices have risen despite oversupply and poor industrial demand.
Barclays Capital expects that given the excess supply of silver, prices could be curbed in 2011. So, this might not be the best time to load up on it.
Mr. Kondajji, the financial planner, notes that for individual investors in India, this is a hard asset to buy because it's not available in an ETF format. He advises clients to "not go beyond 10%" for their overall allocation to commodities, including gold and silver.
Real estate: 5% to 30%
It's tough to measure the performance of real estate because prices vary by cities and neighborhoods.
Still, here's an estimate of how residential real estate prices have moved this year in three major Indian cities.
The smallest returns came in Bangalore, where apartment prices gained 5% to 10%, according to Gulam Zia, national director for research and advisory services at Knight Frank India Pvt. Ltd., a real estate consulting firm.
In Delhi, Mr. Zia estimates that prices went up between 10% and 20% but for some luxury apartments they gained as much as 25%.
Mumbai was the best-performer, with gains of 20% to 30% this year. However, Mr. Zia adds that toward the end of the year sales volumes of new apartments dropped and he expects prices to drop as much as 10% to 20% in the first few months of 2011.
"Buyers in Mumbai should wait for the next quarter or two," says Mr. Zia. He expects some decline in Delhi prices as well.
Given the large amounts of money required to buy real estate, and the lack of liquidity, only the very rich should consider dabbling in this for investment.
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