Financial year-end means a lot of paperwork. Besides gearing up to file income-tax returns, other important decisions like portfolio rebalancing or investing in some instruments have to be made. The answers to these depend on several issues.
For one, there are new tax limits. Both the basic exemption limit and the slabs have been raised in the Budget. This translates into a benefit of Rs 22,600 for those in the tax bracket of over Rs 10 lakh
Then, some instruments have turned favourable. That is, rates of small savings instruments, such as the Public Provident Fund, National Savings Certificate and Post Office savings schemes have been increased. For the retired or ones inclined towards debt, this is a good move.
There is a possible emergence of an equity scheme from the government for first-time investors in direct equities — the Rajiv Gandhi Equity Savings Scheme.
| RISHAB MISHRA’S PORTFOLIO | |
| Debt: | Rs 3 lakh in debt in various debt mutual funds |
| Equity: | Rs 4 lakh, of which Rs 2.50 lakh is in equity diversified funds, Rs 1 lakh in equity-oriented balanced fund and Rs 50,000 in a technology fund |
| Gold: | Holds units of gold ETFs |
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| RENUKA ARORA’S PORTFOLIO | |
| Debt: | Rs 2.5 lakh in bank fixed deposits |
| Equity: | Rs 45,000 in equity large cap mutual fund schemes |
| Gold: | Rs 75,000 worth jewellery |
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The investor’s risk profile too, would come into play.
Given all these factors, investors may have to do some tweaking in their portfolios over the next few months.
The past year would be remembered more for strong returns from debt (in excess of nine per cent) and exceptional returns from gold (36 per cent). Equities suffered by falling nine per cent, but didn’t dig a big hole into your portfolio. In other words, if you had a 50-50 portfolio in equities and debt, you might be sitting on profits. Similarly, if you were sitting on 50:30:20 in equities, debt and gold, there would be marginal profits of five per cent.
Going ahead, investment experts say debt will continue to give similar returns. However, there are hopes that equities may bounce back in the second half of the year.
While savings for goals is one part of the story, if you are saving through equities for a house to be bought in the next two-three years, it will need to be funded more aggressively. In that case, taking off profits from debt and putting it into equities will make sense. But for some goals like funding a trip, you need not be too aggressive. If you don’t have enough funds, it’s better to go for a smaller or cheaper trip.
Some rebalancing advice from experts: A 25-30-year-old with a portfolio of 80:20 in equities may reinvest the profits from debt into equities. “Given that these people have little responsibilities, earning good returns should be their main motive,” said a financial planner. As you grow up, in terms of dependents, getting married with children and so on, it’s time to be a little more conservative. For someone in the age bracket of 30-45 and with a 60:20:20 portfolio in equity:debt:gold, and with a child, saving for the child’s future should be priority.
In such a case, book profits in both gold and debt and move the money to equities. Arnav Pandya, financial planner, says, “This is because over a longer tenure, equity will return 10-12 per cent on an average annually, unlike debt.” Or, if you have high exposure in debt or have money lying idle in banks,it is time to move it into equities.
For the older group, 40-55 years, goals change and so do investments. Like in the case of sisters Renuka Arora and Tina Sachdev. They invest 70 per cent of their portfolio in debt (fixed deposits) and 12 per cent in equity funds, and the rest in gold (jewellery).
“For their mutual fund portfolio, they should move to a monthly systematic investment plan (SIP). Instead of putting more money in the bank, they should invest in a fixed maturity plan (FMP), as they will get a better tax advantage,” says Amar Ranu, senior manager (third party products), Motilal Oswal Private Wealth. If you are approaching retirement or are retired, raise your debt holding to 70-80 per cent for capital protection. And, if sitting on losses from equities, wait it out.
