Investment success requires planning and perseverance. Unfortunately, many of us either do not plan or abandon long-term investments when faced with short-term adversities of the market. Besides, it is also common to see investors investing haphazardly to save on taxes at the fag end of the financial year.
It is often recommended that one should review portfolio composition and plan for future investments at the beginning of the calendar year, so as to avoid making abrupt investment decisions. Although there is no significance of a new year in the review and investment process, it helps in maintaining the discipline of reviewing the portfolio at fixed intervals. If you have been contemplating following this approach, the start of a new financial year provides you an opportunity to do so. Here is what you can do:
Take a close look at your existing asset allocation. If it is too aggressive, it’s time to rebalance it. While investing in debt instruments, look for tax-efficient options, such as mutual funds and tax-free infrastructure bonds. On the other hand, if your asset allocation is too conservative, it’s time to either start investing in an asset class like equity or increase exposure to give your portfolio a chance to earn positive real rate of return.
Review your insurance portfolio. Make sure you are adequately insured. If you have been following a strategy of mixing your investments with insurance and have accumulated a number of policies, it’s time to change that. Remember, it’s not the number of policies but the quantum of risk cover that should matter to you. A term insurance plan is an ideal product to reduce your costs and to ensure adequate risk cover.
Start planning your investments to save taxes now. First, make tax savings an integral part of your overall investment plan. Second, while planning your investments under Section 80 C, ascertain how much you have to invest in compulsory options, such as provident fund, insurance premium or housing loan repayment and then decide the amount for other options such as Public Provident Fund, an equity-linked savings scheme (ELSS) or National Savings Certificate.
Third, continuation of ELSS provides a great opportunity to invest in an equity-oriented option to save taxes for one more year. If you intend to invest in a systematic manner, enroll for systematic investment plans (SIP) now. Also, keep an eye on details for the Rajiv Gandhi Equity Savings Scheme that would allow income tax deduction of 50 per cent on an investment up to Rs 50,000 in direct equities (eligible only if your annual income is less than Rs 10 lakh and you are a first-time investor).
Fourth, take advantage of the Rs 5,000 deduction allowed on preventive health checks under Section 80 D in case your health insurance premium does not exhaust the entire limit of Rs 15,000. If you have been investing in equity funds through SIP on and off, it’s time to invest with a clearly defined time horizon. Remember, the more time you give your equity investments to grow, the more you benefit from its true potential, as well as the power of compounding.
During the current financial year, tax-free infrastructure bonds will provide you another opportunity to provide that extra edge to your debt portfolio. Remember, these are different from infra bonds that gave you tax benefit on investment up to Rs 20,000 under Section 80 CCF during the last two financial years.
FMPs and short-term debt funds remain attractive options for investments. Considering factors such as bloated fiscal deficit, weakness in the rupee and rising oil prices, the Reserve Bank of India has a limited leg room for aggressive rate cuts. Therefore, tread carefully if you are looking to invest in income funds.
If you have been investing in gold funds/gold ETFs either with an objective to accumulate gold for specific goals such as child’s wedding/gifting gold to a near and dear one or as a part of asset allocation, you can continue the process. However, if you have been investing aggressively in gold in the hope of earning returns in line with last couple of years, it’s time to tone down your expectations, as well as realign the portfolio.
The writer is CEO, Wiseinvest Advisors
