Investing Smart, Earning Big
Select the right financial plan based on your risk profile
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.