5 Top Year-End Investment Tips
These investment tips will help you before you file your return
By looking at your activity and learning from the year that went by, you would be able to come up with good lessons. If you need any help, read on to know 5 key tips for your investment portfolio. Look at 2019 with a measured dose of optimism and caution. Read on to know more.
1. Make Large-Caps the Foundation of Your Portfolio
A good house is always built on a strong foundation. Every investment portfolio has three/four components - equity, debt, cash, and gold. For those in the 25-45 bracket, adequate exposure to equity is important for the wealth creation goals. Hence, it is important to have the right choice of securities in equity. Large-cap shares/stocks belong to the top 100 companies. These are proven market leaders in their individual space. In 2018, stock markets have been volatile but if you look at how good large-caps have performed, you will understand why a bias towards large-caps is useful. As we step into 2019, it is extremely important that the portfolio be stable.
2. Increase Your SIP Amount
A New Year is all about new possibilities. Every year, your income is enhanced thanks to appraisals and pay hikes. You may want to enjoy the hikes for the first few months, but as the zing wears off do remember this is extra money. So, it is important to save. If you don't save the extra income, you are more likely to splurge it. One of the best things that you can do is to increase your SIP amount. Inflation is a silent monster eating away the purchasing power. By hiking the SIP amount by 5-10per cent in the new year, you can definitely have an extra layer of the shield. By enhancing your SIP, you are giving your investments a chance to buy more if markets turn weak.
3. Take Advantage of NPS Extra Tax Benefit
The financial year will only end in March 2019, but there is an added advantage that may pursue you to invest in National Pension System (NPS). The NPS is a retirement scheme where you can contribute money. This money was used in various investments and given back to you as per a set formula. At the time of withdrawal, 40per cent of the proceeds have to be compulsorily invested in an annuity, 40per cent were tax-free withdrawal, and 20per cent could be annuitized or withdrawn after paying tax as per slabs. Now, the government has changed the withdrawal norms. Now, 40per cent is a compulsory annuity, and the balance 60per cent can be withdrawn tax-free. Under Section 80CCD of the Income Tax Act, individuals can claim an additional deduction of INR 50,000 over and above the INR 1.5 lakh available under Section 80CCE of the Act.
4. Ready for a Rate Cut
The Indian central bank has seen a change of guard, with a new RBI governor coming in. Coincidentally inflation data shows that price rise is subsiding, thanks to cooling oil prices. This has heightened expectations of at least 25 basis point rate cut as early as February. A rate cut has significance for your investments. Equity markets cheer a rate-cut, while your bank FDs and other debt investments may offer incrementally less. It is important to be prepared for a rate-cut as you look at your investments in 2018 year-end.
5. Keep 10-15 Per Cent Cash Handy
Cash is a bad word today, but the liquidity advantage of cash can never be ignored. Many investors who practice asset allocation make the mistake of being fully invested across assets. This leaves them with nothing in hand i.e. cash. If new opportunities emerge or existing assets throw a good opportunity, the absence of cash really hurts. So, it is essential that you take stock of your cash in hand situation as 2018 draws to a close. Being fully invested is not a great idea just as having more than 20per cent cash is a bad move. Keeping 10per cent of your portfolio in cash such as liquid and overnight funds is a smart move. This allows you some breathing space and also earns some money. So, it is not idle cash. If opportunities emerge, you can almost instantly withdraw money and deploy funds in the targetted asset class.
Anil Rego is the CEO and founder of Right Horizons, an end-to-end Investment advisory and wealth management firm. An MBA and CFA degree holder, Anil believes in the Contrarian approach of wealth management. His areas of expertise includes Corpus fund management, tax planning and end to end financial planning for both residents and NRI investors .
Anil has worked for Wipro as Business Planning and Merger and Acquisition Manager before starting Right Horizons in October 2003. RightHorizons has branches across Bangalore, Mumbai, Chennai and Hyderabad.
Anil has been a columnist in leading Indian newspapers. He also routinely answers queries in mainline publications and websites. He is also a Guest Lecturer with various business schools like ICFAI, ITM and Union Bank School of management. Anil has also served as member, Board of Governors, at IBSAF.