Which is the best asset class to invest in 2024?

2024 has brought home a number of economic stresses that carry many dimensions. Bangladesh is also feeling the heat, as fighting inflation and stabilising the foreign exchange market have become major challenges. 

Nonetheless, amid all the negativity around, it is important to move ahead with high hopes and positive thoughts.

For this, a wise utilisation of the money is critical. Here, I aim to focus on the most suitable classes of assets you may consider investing your money in, and also how these assets are likely to perform in the coming days.

Bank FDR

As the interest rates are on a rising trend, the expectation is that FDR rates would increase, which, as a matter of fact, is already happening.  

However, the inflation rate, which as of November was about 9.5%, will be a matter of headache in this regard.  

Banks are currently being allowed to set lending rates based on the so-called SMART (six- months average rate of treasury bill) plus scheme, at 3.75%. In January 2024, following the SMART, the lending rate topped at 11.89%. 

According to leading bankers, maintaining a 3% operating profit is minimum for the banks, which means that the expected maximum deposit rate from banks will be 8.89%. The latter is below the inflation rate, and is further going to reduce thanks to the ongoing tax scenario. 

This is because, going by current rules, when a bank credits interest to a deposit account, a 10% at source tax on the interest earned is deducted. 

Moreover, the interest earned, post deduction, is itself a taxable income - meaning the expected deposit rate will be additionally lowered.

It should be emphasised that a number of banks are struggling due to acute liquidity crisis. Hence, if you decide to go the FDR route, wisely choosing the right bank is the key. 

As I explained above, even well-performing banks are unlikely to offer very high deposit rates straight away, but keeping your capital safe and secure should be the first priority.  

Government securities

Investment in the government securities may seem like a good option in terms of return and tax rebate - which is up to Tk5,00,000. 

There are two types of securities available - savings certificate, and treasury bill or bond (T-bill or T-bond).

Purchasing a savings certificate is rather straightforward - they are available at any bank or government-designated outlets upon showing necessary documents.

Meanwhile, treasury bonds can be purchased at auctions taking place at the Bangladesh Bank, or from the secondary market - the latter may lower the return rate as one has to pay a premium over the original price. 

For investments above Tk5,00,000 on the savings certificate, the tax deducted at source is 10%. However, no further tax is imposed on the interest. 

As for treasury bonds, the tax deducted at source stays at 5%. The income, however, has to be shown as "income from financial assets" during the yearly tax return, and the general income tax regulations apply. 

Public Equities

One benefit of investment in public equities is a tax rebate on the base amount, and unlike government securities, there is no maximum limit up to which one can ask for a rebate.

However, many stock exchanges in recent months have not had interested buyers because of manifold issues. 

First, imposition of floor price by the Securities and Exchange Commission hampered the general flow of the market. The 18-months long floor price was withdrawn recently, and turnover in the prime bourse has increased. 

Yet, restoring investors' confidence on the market, in particular in trading securities, may take a long time. 

Second, the devaluation of Taka along with increased shipping charges is adding salt to the wound of overall increasing business costs.

On top of these, public equities tend to underperform during a rise in the interest rate. Overall, all these suggest that, amid the current volatility surrounding stocks, patiently waiting should be the name of the game until the situation improves reasonably. 

Real Estate

While investment in the real estate sectors, in Bangladesh, has always been considered a good move, amid the recent inflation and historically high estate prices - potential risks must not be overlooked.   

In theory, during inflation, real estate investments act as great inflation hedges. The downside is that such investments are not significantly 'liquid' - often depending on ongoing socio-economic circumstances.

This is not to say that you should not invest in estate assets, however, dealing with such using cash money, with no financial institutions involved, should be safer. Otherwise, proceeding with such plans at this moment is not advised for now. 

Mutual Funds

"Fixed income no dividend" mutual funds are tax efficient and lucrative investment routes at this moment due to various reasons. 

First, for up to Tk5,00,000 investments in open end mutual funds, investors get a 15% tax rebate.

Second, as of the new income tax act, all dividend incomes will be taxed at an ordinary rate. In addition, since the "no-dividend mutual funds" will not pay any dividend, no tax will be associated. The only gain from those funds will be the capital gain, which also is tax-exempt. 

Adding to this, mutual funds are not subject to the tax deducted at source.

Third, the amount collected for the mutual funds will be distributed into different fixed income means such as FDR, government securities, listed bonds and so on. 

Fourth, these funds have quotas in the initial public offering, IPO; IPOs are generally associated with very good returns - although this may vary depending on the fund-investment policy. 

Cautions should be exercised, however, as apart from the fixed income scheme, investment in other mutual funds is not advised. This is due to a couple of reasons.

The first involves inconsistencies regarding the stock market floor price. 

In addition, mutual funds, other than the fixed income schemes, are often invested in public equities, which do not bring much positives during the period of high inflation and interest rates. 

Even with regards to fixed income mutual funds, investors must be careful that they are up-to-date about the investment policies, and regularly check their portfolio holdings.

Despite the limitations, the fixed income mutual fund, given the current economic circumstances, has the highest potential for ensuring good earnings - if managed properly.

Shahriar Azad Shashi is a financial technology consultant, SELISE Digital Platforms.