We are always on the lookout for investment products which would make sense in our client’s portfolios. The selection is majorly dictated by simplicity, lower costs, tax efficiency 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. We have not included complicated products like PMS and AIF as they don’t fit our criteria of financial products. The below suggestions are mere opinion on these financial products. Principles of asset allocation, diversification, lower costs, simplicity and tax efficiency are the building blocks of a successful and long-lasting financial portfolio. It is extremely important that you connect with a Registered Investment Adviser/ Certified Financial Planner before including these products in your financial plans.

Foundation of any Financial Portfolio:

Each investor should have minimum 12 months of mandatory expenses (or 10% of one’s financial wealth) parked in a bank account or liquid mutual fund for liquidity management. Apart from this, one should have a comprehensive health insurance plan (ideally low cost super top up plan or basic plan with deductibles) and a Term Insurance plan.

The following is our list of financial products with their characteristics which can be part of most of investors financial portfolio.

Government Guaranteed Assured Return Schemes: It could be noted that NRIs cannot invest in the below mentioned schemes.

1. RBI Floating Rate Savings Bond: These are 7-year bonds (lower lock in for investors greater than 60 years of age). Interest @ 0.35% higher than the prevailing Postal NSC rates. Currently these bonds pay 8.05% p.a. (taxable). Interest is paid half yearly and is on floating basis. Safest and the highest return earning product currently. Can be purchased at Specified banks.
2. Senior Citizen Savings Scheme: A must have for every senior citizen (60 years and above) irrespective of risk profile and portfolio size. One Senior Citizen can invest a maximum of Rs 30 lakhs per scheme with a 5-year time frame renewable at maturity. Currently these products yield 8.20 % p.a.(taxable) with interest credited every quarter. Can be purchased at all Indian Post Offices and Specified banks.
3. 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. Investment in minors account would be clubbed with the guardians PAN for the Rs 1.50 lakhs annual limit. Don’t be too bothered of the long investment term of 15 Currently yielding 7.10% p.a. Invest by April 5^th of each year to earn full years interest.
4. Sukanya Samridhi Scheme: Very similar to PPF but restricted for girl child. Open the account before the girl child reaches 10 years. Invest maximum amounts @ Rs 1.50 lakhs p.a. per account. Investment term is 21 years and contribution term are 15 years. Balances can be withdrawn in between for important milestones like higher education and marriage. Currently yielding 7.10% p.a. Invest by April 5^th of each year to earn full years interest.

Conservative options for short to medium term and even long term:

5. Liquid /Floating Rate/Short Term Debt Mutual Funds: Debt mutual funds are an excellent conservative alternative to banking products. Investors in lower tax bracket could park funds here for better returns than banking products at similar level of safely and liquidity. Suggested for over a week to very long-term horizon.
6. Arbitrage Mutual Funds: These mutual funds are an excellent tax efficient conservative alternative to short term Fixed Deposits. Investors in higher tax bracket could park funds here for better post tax returns than banking products. Suggested for over 3 months to 2 years.
7. Specified Mutual Funds: These mutual funds are special category of conservative mutual funds which have 35% allocation to equity/ arbitrage positions. These get taxed @12.50% for holding period greater than 2 years. Investors in higher tax bracket could park funds here for better post tax returns than banking products. Suggested for over 2 years to very long term.
8. Dynamic Asset Allocation/ Balanced Advantage Mutual Funds: These mutual funds invest between equity and debt allocations based on relative valuations. These can give good inflation beating returns with lesser volatility. Can be part of regular income option portfolio with an automatic withdrawal strategy (SWP). Suggested for over 3 years to very long term.
9. 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 lower tax brackets and NRI’s (NRE/FCNR deposits) can have a higher portion in FDs. FCNR deposits are an excellent avenue for NRI investors to diversify currency risk. Invest with maximum possible term as interest rates would gradually move downwards in the times to It would be better to stay away from co-operative societies and co-operative banks.

Invest in Gold as a portfolio diversifier.

10. Gold ETFs and Gold Mutual Funds: We have always advocated gold investments @ 5- 10% of one’s financial wealth as a portfolio diversifier. This could be invested in Gold ETFs and Gold Mutual Funds. Invest gradually to build your portfolio.

Aggressive Allocation to build inflation beating returns over long term:

To build long term wealth invest in a portfolio of well managed companies or equity mutual funds. However, these are extremely volatile in the shorter term and hence should be invested gradually (SIPs) with minimum 5 years plus investment term. The following options are good.

11. Equity Index Funds & ETFs: If picking equity mutual funds and stocks sounds confusing, you could buy low-cost index funds and ETFs benchmarked to popular Indices like Nifty 50, Nifty 100, Nifty 500, Nifty Next 50, Nifty Midcap 150 and Nifty Small Cap 250.

12. International Equity Mutual Funds: Investing in international equity funds diversifies your Equity portfolio. Around 10% of your overall wealth could be invested here. Easiest option is to invest in passive equity funds benchmarked to S&P 500. This is an index fund investing in the top 500 companies of USA. Sometimes investments are not possible due to RBI limitations.

13. Active Equity Mutual Funds: Invest in a portfolio of large, mid, small, value and growth-oriented active equity mutual funds. However, do not over diversify. While these would be expensive relative to passive funds, these add flavor to the overall portfolio.

14. Multi-Asset Allocation Mutual Funds: These invest in a basket of domestic and international stocks, debt instruments and commodities like Gold. If you want a simple way to get allocation to multiple asset class with lesser volatility than these types of schemes can help you.

15. 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 with a buy and hold approach. This would reduce the overall cost of your portfolio as there would not be any fund management expenses. A compact portfolio of 15-25 companies would be a good idea. Allocation could be roughly around 15-25% of one’s financial wealth. This portfolio should complement your equity mutual fund portfolio. However, stay away from day trading, derivatives and speculative transactions.

Spicing up your portfolio with new age investments:

16. 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 4 listed REITs and one SM REIT in India now. Suggested investment horizon is 5 years (and above). Invest 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.

Finally, to save some more taxes under the new tax regime:

17. National Pension Scheme (NPS): NPS is the only option to save tax under the new tax regime if you are employed and your employer has enrolled for NPS. You can contribute 14% of your basic monthly pay and build a rock-solid low-cost portfolio. Opt for higher equity allocation of 75% if one is less than 50 years of age. Others can opt for 50% equity allocation with the rest being equally spread between corporate bonds and government securities.

We request you to get in touch with us at 9845557582 or naveen@naveenrego.com for any clarifications on the above suggestions. We are a fee only financial planning firm and hence do not have any conflict while recommending any strategies and recommendations. Do visit www.naveenrego.com to know about our engagement models.

Wishing you all a safe and exciting investment experience.

Naveen Julian Rego- CFP

Managing Director & Principal Officer

14-Feb-2025

Disclaimer:

1. Investment in the securities market is subject to market Please carefully review all relevant documentation before making an investment.

2. Registration granted by SEBI, membership of BASL and certification from NISM in no way guarantees the performance of the intermediary or provides any assurance of returns to investors.

3. Past performance of any asset class is not an indicator of future performance.

4. 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.

5. Some of the above financial products might not be available with passage of time.

6. More details about the above-mentioned respective products are available online and not produced here for simplicity.