New Financial Year- Put Your Investments Back On The Right Track

Chief Executive Officer, Wiseinvest Advisors

Investing your hard-earned money is a process that requires planning and discipline through your defined time horizon to ensure that your portfolio remains on track to achieve your investment goals. The level of investment success you can expect to achieve will largely depend upon how you respond to the bouts of market volatility. A case in point is :PaidContentStart]

current downturn in the market after a fantastic run over the last 18 months. 

While one cannot remain unaffected by a fall of around 10 percent, any ad hoc decisions during such testing times can be detrimental to your financial future. The right way to tackle the turbulent times is to keep focus on your time horizon and continue your investment process uninterruptedly. However, if investments are made without having a plan in place, it becomes necessary to analyse the composition of your portfolio periodically. While there is no rule about when to do it, the start of a new financial year can be a good starting point. Let’s discuss the importance of this process and how to handle various aspects of this analysis: 

Rebalancing the portfolio: 

Most of us follow asset allocation,i.e. diversifying investments across various asset classes such as equity, debt and gold in some form or the other. Over time, the allocation changes as various asset classes behave differently over different time periods. Besides, when the stock market does well, we tend to allocate more to equity funds and invest in aggressive funds such as mid-cap and small-cap,thematic and sector funds. At some point, we need to rebalance the portfolio and bring our asset allocation back in line with our risk profile and time horizon. However, for someone following a goal-based investment process as well as a disciplined approach of investing through SIP,rebalancing would be required only near the completion oftime horizon for a goal like your child’s education and retirement planning. 

Plan your tax saving investments: 

It is quite normal to see investors making ad hoc decisions while investing in tax saving instruments at the fag-end of the financial year. As a result, they lose an opportunity to make these investments count in their wealth creation process. For most investors, options like PPF, 5-year bank FD, NSC and other conservative options eligible for deduction under Section 80C remain the preferred choices. It’s time to look beyond these options and include an option like ELSS gradually in tax saving portfolio. ELSS can be a great choice for someone who wants to begin investing in equity funds as a mandatory lock-in period of 3 years allows them to get a feel of how the markets behaves and how to tackle the volatility as well as benefits from higher growth. 

Rethink on dividend option in equity and balanced funds: 

There are investors who opted for dividend pay-out in the past merely because dividend from equity and balanced funds was tax free. Some even used dividend pay-out option as a tool to book profits periodically. However, consequent to the introduction of Dividend Distribution Tax (DDT) of 10 percent w.e.f. April 1, 2018, there is a need to review this strategy. If there is no real requirement of dividend either for their running expenses or any other need, it would be advisable to switch into the growth option. For those who are already in growth option for over a year or more and now require regular income, a Systematic Withdrawal Plan (SWP) can reduce the uncertainty in receiving regular income as well as reduce their tax outgo as LTCG up to Rs one lakh is not taxable. 

Monitoring the progress of the portfolio: This activity is as important as investing money in the right asset classes and funds within those asset classes. An important aspect while analysing the performance of market-linked products is to look at the relative performance vis-à-vis the benchmark as well as the peer group, rather than absolute returns. Considering that volatility is a natural phenomenon in the market, it will not be fair to compare the performance of an equity fund during both falling as well as rising markets. The risk of volatility is something that investors need to contend with. As long as the funds in the portfolio do better than benchmark and the peer group, there is no need to panic and take some ad hoc measures.