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7 Things to keep in mind while investing this financial year

May 11, 2015 by Pradip Chakrabarty | 47 Downloaded

Like each financial year, this financial year too we need to keep certain things in mind before we start investing. Tax payers are required to have a tax saving angle along with their risk taking appetite while embarking on to their investments. Non tax payers are also needed to be careful about their risk taking ability and investment horizon before they proceed. In this article, we have tried highlighting the seven most important things that we feel investors should keep in mind while investing for this financial year.

Must have a minimum 3-5 years horizon in equity

Unlike last year, returns from equity may not be that great this year. Having said that, markets have corrected almost by 10% from the recent peak and thus provide an attractive level to enter now. The current economy is poised for equities to blossom as the Government have started the reforms process aggressively. This will revive the economic cycle and boost the corporate earnings. Experts feel that 15-16% earnings growth is possible in FY15-16. Also, initiative like - Make in India, Skill development, incentive for opening of bank accounts for unbanked and the growing internet penetration etc. will have a very positive long term triggers for the equity market.

Those with moderate to high risk taking ability should invest in equities or equity oriented mutual funds but with a view of minimum 3-5 years. Tax payers can choose the same route by investing in ELSS funds. To reap the rich benefits from equities after 3-5 years, this financial year can be a great year to start with for those who have still not taken or have less exposure to equities.

Have exposure in fixed Income

You should start investing in fixed income as soon as possible before the RBI starts cutting the interest rates. This FY provides the best opportunity for investors to get good return from fixed income. In a falling interest rates scenario, debt funds tend to perform much better and beat the rate of return of traditional fixed return products like fixed deposits, etc. Investors with an investment view of 12 – 18 months should increase exposure in debt funds and reduce exposure in fixed deposits, postal deposits etc.

Enjoy the volatility and encash the opportunity

Unlike last year, markets are very volatile in 2015 and expected to remain so. This will continue for some time due to many factors like - introduction and passage of various bills in the Lok Sabha and Rajya Sabha, Assembly elections due in couple of states, delay in pick up of capex cycle or the expected rally in crude prices etc.

Therefore, investors should stagger their equity investments over a period of 12 months atleast. Instead of investing in lumpsum you should invest systematically or through Systematic Transfer Plan (STP). In STP your lumpsum amount earns some return while you transfer small amounts in instalments to equities weekly or fortnightly and get the benefit of rupee cost averaging.

Hold on to fresh real estate and Gold investments

We Indians always over invest in real estate and gold. These asset classes have failed in giving any return to investors in last 2 years. As discussed earlier, equities offer tremendous opportunities from here to next 3-5 years and investors can expect 15-18 percent compounding returns if they remain patient. Instead of taking fresh exposure in real estate and gold, the investors should consolidate and review their existing investments in these two asset classes.

Have exposure in beaten down sectors

2014 has been an exceptional year for equities. However, sectors like power, infrastructure and PSUs and some of the PSU banks have not performed well and are beaten down. Governments’ initiative for getting the coal production going, vision of supplying power, emphasise of creating robust infrastructure across the nation and disinvestment of PSUs might help revive these sectors.

Mostly, investors look for diversified equity funds for their equity exposure. However, if your risk taking appetite is high and can wait for a longer period then you can have exposure in these sectors through sectoral funds or through schemes which has exposure to these companies or sectors. Remember, risk reward ration can be very high in this and thus an advice from your financial advisor is must.

Do not delay Tax Planning

After the month of March we feel relaxed as we have completed another FY. Our tax planning and tax investments are over and the receipts or declaration have been submitted to your company for final processing of the salary of March 2015. Those who are in business or self employed, feel relaxed as they have done the needful according to the advice of their tax consultant or financial advisor.

However, the beginning of the new FY is not a period of time to relax but a time to start and have a tax planning for the current FY. You should fix a meeting with your investment advisor or tax consultant and plan according to the changes proposed in the current budget. Remember the advantages of starting early. Instead of putting lumpsum at the end of the year, start investing in PPF monthly by 5th of every month to get the interest of that month. Similarly for ELSS, start investing through SIPs and enjoy the volatility. If you have invested in Life Insurance, there is nothing much that you can do as the premium falls due according to the date and month of start of the policy.

Open a NPS account if you do not have one

The Budget 2015 has proposed an additional deduction of Rs. 50,000 under Section 80CCD (1B), over and above the Rs. 1.50 lacs Section 80C limit. Investors aged between 18 – 55 can open a NPS account. With a maximum exposure of 50% in equities, NPS schemes are already beating the returns of traditional investments. With benefits of Tax saving, moderate equity exposure and pension from age 60 makes it an attractive investment option in the new FY.

Conclusion – in the above article we discussed the 7 most important things that every investor should focus on at the beginning of this FY. However, investors should invest in equities based on their risk taking appetite, age, occupation and most importantly their asset allocation. Having a meeting with your financial advisor and tax advisor is the most prudent advice that we would like to give. Another advice would be to review the old and existing investments while starting the new ones during this financial year.

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Pradip Chakrabarty

Pradip is a first generation entrepreneur who has built a very successful business for distribution of financial products over last 19 yrs. He is also the Founder and CEO of www.advisorkhoj.com. Pradip is well respected in the Financial Services industry and brings deep domain knowledge and leadership skills and is considered as one of the top Investment Advisors in India. He can be contacted at pradip@advisorkhoj.com

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