We are always looking out for investment products which would make sense in our client’s portfolios. The selection is majorly dictated by simplicity, lower costs and ease of management. Past/future returns would not be the sole criteria for these selections as we believe returns are only a byproduct of good process-based investment approach. So here goes our list:
Government Guaranteed Assured Return Schemes: Foundation of any financial portfolio (NRIs cannot invest)
- RBI Floating Rate Savings Bond: These are 7-year bonds (lower lock in for investors greater than 60 years of age). Interest @ 7.15% p.a. (taxable) is paid half yearly and the interest is on floating basis. NRI’s are not eligible to invest. Safest and the highest return earning product currently.
- Senior Citizen Savings Scheme and Pradhan Mantri Vaya Vandana Yojana: A must have for every senior citizen irrespective of risk profile and portfolio size. One can invest a maximum of Rs 15 lakhs per scheme. Currently these products yield 7.40% p.a. with income coming @ monthly/quarterly.
- Public Provident Fund: Young or old, conservative or aggressive, Rich or Not so rich, salaried or business-this is a must have in each investors portfolio irrespective of taking tax breaks or not. Invest maximum amounts @ Rs 1.50 lakhs p.a. per account. Don’t be too bothered of the long investment term of 15 years.
- Sukanya Samridhi Scheme: Very similar to PPF but restricted for girl child. Invest before the girl child reaches 10 years and use the accumulation to fund important milestones like higher education and marriage. Invest maximum amounts @ Rs 1.50 lakhs p.a. per account. Sec 80 C benefit is only an extra advantage.
Conservative options for short to medium term:
5. Floating Rate/Short Term Debt Funds: Debt mutual funds are an excellent conservative alternative to taxable fixed deposits for people in the higher tax brackets. Investors looking at parking funds for medium term perspective can invest in these debt funds. Suggested with 3 years plus time frame.
6. Arbitrage Funds: If you have booked profits from equity markets (and would like to redeploy at the opportune time) or looking at tax efficient ways to park money for the shorter time frame (6 months plus), we would suggest these schemes. These work like conservative debt funds but taxed at a concessional rate as that for equity funds.
7. Fixed Deposits with banks: Some portion of one’s wealth can stay here as this gives peace of mind and can be managed easily. Investors in higher tax brackets should have a small portion in FDs. NRI investors and especially from middle east can have bulk of their conservative portion here (NRE and FCNR deposits) as these are tax free. Invest with maximum one year term as interest rates would gradually move upwards in the times to come.
Conservative tax efficient option for medium to long term Conservative Hybrid Fund/Equity Savings Fund:
8. These types of funds invest small portion in equity markets based on relative valuation. Investors could use these products as a tax efficient alternative for their conservative allocations. Also, an excellent addition for regular income earning portfolio. Suggested with minimum 3 years plus time frame.
All that glitters is Gold: Best bet against inflation
9. Sovereign Gold Bonds (SGB): Gold prices have corrected near about 15% from last year’s high. We have always advocated gold investments @ 5-10% as a portfolio diversifier. Invest through SGB as one gets some annual returns (currently 2.50% p.a. plus) and gains are tax efficient. NRI’s cannot invest in this and hence have to make good by investing through Gold ETF’s or Gold Mutual Funds. Invest before the prices move upwards of Rs. 5,000 per gram. Invest with 5 years plus time frame.
10. Gold ETFs and Gold Mutual Funds: While investment in SGB’s could be part of one’s long-term holding in Gold, some portion can be invested in Gold ETFs and Gold Mutual Funds for portfolio rebalancing and liquidity. Considering the current attractive prices, 5% could be invested in SGBs (not for NRIs) and the remaining 5% in Gold ETFs or Gold Mutual Funds.
Equity Portfolio: To build long term wealth invest in a portfolio of well managed companies. However, these are extremely volatile in the shorter term and hence should be invested gradually with minimum 5 years plus investment term.
11. Low Volatility 30 ETF FOF: These equity funds invest in compact portfolio of 30 companies which are less volatile than the benchmark index. Over a long period of time a portfolio which falls less actually gains more. This can be bought as an open-ended mutual fund or through the stock exchange as an ETF/FOF through one’s demat accounts. Can be part of equity allocation of all type of clients. Suggested investment horizon is 5 years (and above). Invest gradually.
12. Quant Fund: This is an equity quant fund where the portfolio construction is done by clearly defined algorithms. This reduces the human bias in stock selection. This is predominantly a large cap-oriented portfolio at lower expenses. Investors taking exposure in Low Volatility 30 ETF/FOF can leave this scheme as the approach looks somewhat similar. However, for larger portfolios both the schemes could be used Suggested investment horizon is 5 years (and above). Invest gradually.
13. PPFAS Long Term Equity Fund: One of our all-time favorites because of its focused equity investment approach. Invests 35% outside India to benefit from international markets. Suggested investment horizon is 5 years (and above). Invest gradually. If one is looking to save tax under Sec 80C, then PPFAS Tax saver fund also makes sense.
14. NIFTY Next 50 Index Fund/ETF: This index fund/ETF invests in a basket of top 50 companies after the first 50 companies by market capitalization. While this is much more volatile than the parent NIFTY index, it does well over longer periods of time. Suggested investment horizon is 5 years (and above). Invest gradually.
15. S&P 500 Fund: This is an index fund investing in the top 500 companies of USA. Excellent way to diversify one’s financial portfolio outside India and be part of the growth of large 15-20 companies which are not available in India. Suggested investment horizon is 5 years (and above). Invest gradually.
16. NIFTY Index Fund/ETF: This index fund/ETF invests in a basket of top 50 companies by market capitalization and gives immediate exposure to the leaders.
17. Direct Equity Portfolio: Clients having overall financial wealth greater than Rs 1 crore, can also explore direct equity investments predominantly focused on blue-chip companies. This would reduce the overall cost of your portfolio as there would not be any fund management expenses. A compact portfolio of 15-20 companies would be a good idea.
Allocation could be roughly around 10-15% of one’s financial wealth. Suggested investment horizon is 5 years (and above).
Spicing up your portfolio: with new age investments:
18. Real Estate Investment Trusts (REIT’s): If one is looking at investing in commercial Real estate as part of portfolio diversification than REIT’s do tick most of the boxes. These invest in commercial real estate and distribute predominant earnings (rent, interest, dividend etc) to the investors. They are traded on stock exchange (for easy liquidity) and there
could be price appreciation over a period of time. Most of the earnings received and gains made will be tax efficient. Makes sense to those who would like to have regular income and for those who want to have real estate allocation locally and globally in a tax efficient manner. There are only 3 listed REITs in India now. These are Embassy, Brookfield and Mindspace. We would also suggest taking exposure in REIT FOF which is a mutual fund targeted at investing in overseas commercial properties through international REITs. Suggested investment horizon is 5 years (and above) and that too gradually. Total investment could be in the range of 5 to 10% with equal exposure to each REIT for portfolio diversification. Not suggested if your financial portfolio is less than Rs 1 crore.
19. Infrastructure Investment Trusts (InvIT’s): Very similar to REITs above are InvITs which invest in infrastructure projects and share the revenues with the underlying investors as dividends, interest or principal repayment. The infrastructure projects could be Highways, Power Transmission or Gas pipelines etc. They are traded on stock exchange which gives any time liquidity for investors. Most of the earnings received and gains made will be tax efficient. Makes sense to only those (especially retirees) who would like to have regular income. There are only 3 listed REITs in India now. These are Power Grid Invit, IRB Invit and IndiGrid Invit. NHAI would soon be listing its Invit. Total investment could be in the range of 5 % (with allocation to one Invit restricted to 1% of total wealth) with equal exposure to each Invit for portfolio diversification. Not suggested as a core regular income portfolio.
Finally, to save some more taxes:
20. National Pension Scheme (NPS): If one is in taxable bracket, then there should not be any second thoughts to invest in NPS. Invest maximum amounts @ Rs 50,000 p.a. per account. Sec 80 CCD tax benefit over and above the Rs 1.50 lakhs benefit of Sec 80C. And if your employer has enrolled for this, then opt for salary deduction for getting some more
We request you to get in touch with us at 9845557582 or firstname.lastname@example.org for any clarifications on the above suggestions.
Wishing you all a safe and exciting investment experience.
1.Market linked investments like Mutual Funds and Equity share investments are subject to market risks. Kindly read the scheme information documents carefully before investing.
2. Past performance of any asset class is not an indicator of future performance.
3. The above financial products should be made part of one’s financial portfolio taking into consideration various factors like risk profile, age, regular income requirements, taxation bracket, residency status etc. Hence, invest in a professional financial planner before initiating the above investments.
4. The above are mere suggestions and not Investment Advice as individual cases might differ.
5. More details about the above-mentioned respective products are available online and not produced here for simplicity.
Naveen Julian Rego-CFPCM
SEBI Registered Investment Adviser
19th May, 2022