Investment Ideas-April 2016
• Equity markets continue to be volatile for quite some time. Investors who have investment horizons greater than 5 years should use such times to increase their equity allocation. Actually, regular investments in equity mutual funds (SIP’s or STP’s) are the best way to benefit from market volatility. Do not get disturbed and postpone equity investments by focussing on your current equity portfolio values. Bad times in any asset class are good times to invest in that asset class.
• Debt or fixed income mutual funds are excellent tax efficient investment options for Residents compared to Fixed Deposits. NRI’s could use this to invest their NRO funds as they are quite tax efficient than NRO deposits. Also, returning NRI’s could plan investments in such schemes 3-5 years before their actual return to reduce their taxation post becoming a Resident. Returns of these schemes could be slightly better than FD but the clincher is tax efficiency.
• Residents and NRI’s (for their Indian income) should use the benefits of Sec 80C to reduce taxable income. Investments here should also take care of other financial goals. Our suggestion has been to invest monthly in tax saving mutual funds (ELSS). These not only give market linked returns over longer term but the gains and dividends are tax exempt. Regular investments reduce the risk of market timing and give inflation beating returns. Start investing right now.
• Investors can avoid investments in NPS to reduce taxable income or otherwise. Even after taking immediate tax benefits, the long returns of the product would be lower than a simple equity mutual fund. It would be better to pay tax and stay invested in a good equity mutual fund. The maturity proceeds of NPS are also quite complicated as on date.
• Interest rates (FD’s, PPF and Postal Savings) are on their way down. Do not increase the risk profile of your portfolio just to earn better returns. Have a proper asset allocation plan which takes care of safety, liquidity, returns and taxation. Stay away from any guaranteed/assured not regulated schemes. This might be a fraud.
• Investments for long term goals (like retirement, children’s education and marriage) should be done through equity linked instruments like equity mutual funds. These would be volatile in the short term but give inflation beating returns in longer term. Regular SIP’s are the best way to fund these goals. Review them as the goals are approaching near. Fixed income instruments like PPF, Sukanya Samruddhi Scheme, RD etc would never be able to beat returns given by equity funds over longer time frame.
• Retired investors should also have allocation to equity mutual funds of about 25% of their entire wealth. This would help them to give inflation beating returns besides tax efficiency. Fixed Deposits could be swapped with debt mutual funds for reducing taxable income. Drawing money (SWP) from debt or a hybrid mutual fund is an excellent tax efficient strategy to earn monthly income.
• Real Estate would continue to disappoint for some more time. However, this phase would give opportunities for people to buy real estate for actual use. Bargain hard for discounts on completed projects. Also, do not jump into buying property just because the interest rates are lower. Do not have more than 50% allocation to Real Estate (excluding self occupied house) any time.
• Avoid investment linked insurance schemes for funding any goals (tax saving, children’s saving, retirement etc) as these are non transparent, expensive and yield low returns. If you have already done this mistake then review and restructure at the earliest.
• Have a comprehensive medical insurance plan to take care of medical expenses. Also, have a pure term insurance plan if you believe you have large responsibilities and liabilities. Review them regularly.
• Do not fall prey to calls from fraudsters asking you to share your important details (password etc) or making you buy insurance with easy bonus. There is nothing called easy money.
• Avoid trading in direct equity and derivatives. These are for professionals and full timers. Else, wealth would get transferred from you to the brokers. Concentrate on your profession (for higher returns) and family (for peace and happiness) instead. Do not search for excitement in your financial portfolio.
• Be tax compliant and use the provisions of tax laws to reduce taxable income. Invest in a good and reliable tax consultant. Use their skills for reducing taxes and not for wealth building and financial planning.
• There is no point in accumulating wealth without a proper goal. Retire early whenever the portfolio is enough to take care of all important financial goals. Do not plan too much for nominees.
• Give lot of importance to estate planning. Have proper nominations in place and draft a will, if possible, to avoid future family conflict.
• Always consult a financial planner (one who is certified and registered with the regulator) for professional guidance and see to it that his/her commercial interests are in alignment with your financial plans. The quality of advice received from a professional would have a large impact on your overall portfolio. There is nothing called free advice.
1. Mutual Fund investments are subject to market risks. Kindly read the scheme information documents before investing.
2. It is very important to consult a professional planner while implementing any of the above ideas.
3. The above are mere suggestions and not Investment Advice as individual cases might differ.
In case, some of the above ideas appeal to you and you would like professional guidance, then feel free to connect to me at 9845557582 or firstname.lastname@example.org.
Naveen Julian Rego-CFP
SEBI Registered Investment Adviser