In­vest­ing Smart, Earn­ing Big

Se­lect the right fi­nan­cial plan based on your risk pro­file

India Today - - COVER STORY - Sharad Mo­han

AGold­man Sachs re­port ti­tled “The Power of the Purse” an­tic­i­pates that nearly 90 per cent of in­dia’s pop­u­la­tion will be mid­dle class by 2040, with women in these house­holds dic­tat­ing spend­ing pat­terns on ev­ery­thing, in­clud­ing fi­nan­cial prod­ucts. While a host of prod­ucts are avail­able at the lower end of the risk re­turn spec­trum such as bank ac­counts and time de­posits for women in­vestors, not much is on of­fer to guide them to­wards fi­nan­cial plan­ning and in­vest­ing. Most still be­lieve that ef­fi­cient in­vest­ing only re­lates to buy­ing spe­cific prod­ucts for sav­ing tax. Women with tax­able in­comes can start by avail­ing the full Sec­tion 80c tax (of the in­come Tax act) de­duc­tions by in­vest­ing in prov­i­dent funds, na­tional pen­sion sys­tems, na­tional sav­ings cer­tifi­cates, unit linked in­sur­ance plans and eq­uity linked sav­ing schemes up to `1.5 lakh (an ad­di­tional `50,000 for in­vest­ments in na­tional pen­sion schemes) per fi­nan­cial year. first as­sess your fi­nan­cial sit­u­a­tion, risk at­ti­tude, risk ap­petite and in­vest­ing knowl­edge and ex­pe­ri­ence. Based on that, ar­rive at a suit­able as­set al­lo­ca­tion and se­lect the right prod­ucts which match your in­vest­ment hori­zon and risk tol­er­ance. for port­fo­lio con­struc­tion, a wide range of prod­ucts are avail­able to choose from.

if you want pre­dictable re­turns with min­i­mum risk, in­vest in tax-free bonds that of­fer at­trac­tive yields for 10 to 20 years when held to ma­tu­rity.

as we go higher in the risk spec­trum and in­vest­ment hori­zon, debt mu­tual funds of­fer bet­ter tax ad­justed re­turns than tra­di­tional fixed de­posits, if held for more than three years. Within debt mu­tual funds, there are sub-cat­e­gories to suit your in­vest­ment hori­zon, start­ing with liq­uid funds, ul­tra short-term funds, short-term funds, credit funds and long du­ra­tion debt funds.

Higher still in the risk spec­trum, con­sider in­vest­ing in eq­uity mu­tual funds—man­aged by pro­fes­sional money man­agers—for achiev­ing long-term goals, which come at a risk of prin­ci­pal and volatile re­turns, but have con­sis­tent track record. These are also tax ef­fi­cient as gains from eq­uity mu­tual funds held over one year are cur­rently tax ex­empted. Div­i­dends de­clared by such funds are also tax free. You can go for sim­ple strate­gies like SiP (sys­tem­atic in­vest­ment plan), which in­volve in­vest­ing in mul­ti­ple tranches over sev­eral years, at reg­u­lar in­ter­vals, and can be used to build eq­uity ex­po­sure. You can also choose to al­lo­cate to bal­anced funds which main­tain as­set al­lo­ca­tion in the fund port­fo­lio it­self be­tween eq­uity and debt.

Sovereign gold bonds, which come at a tax-free re­turn of 2.5 per cent with­out any has­sle of phys­i­cal stor­age, with­out com­pro­mis­ing on ap­pre­ci­a­tion in price of gold, can be con­sid­ered in­stead of in­vest­ing in or­na­ments and bars.

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