DSIJ Mindshare

Time To Increase Equity Exposure In Your Portfolio

Hemant Rustagi - CEO, Wiseinvest Advisors

It was widely believed that the Union finance minister will provide some relief to demonetization-hit middle class either by increasing minimum taxable limit or reducing tax rates as well as increasing the limit of tax deduction under section 80 C and exemption on housing loan interest.

While the finance minister did announce reduction of tax rate for individuals with income ranging between Rs 2.5 lakh and Rs 5 lakh to 5 per cent instead of 10 per cent, a surcharge of 10 per cent has been levied on those taxpayers who have annual income between Rs 50 lakh and Rs 1 crore. Besides, the tax rate for MSMEs has been reduced to 25 per cent. However, the budget was a disappointment for large industries as no reduction was announced in the corporate tax rate. All in all, it was a mixed bag on the direct tax front.   

If we look beyond the changes in the direct taxes, Union budget 2017 does have the potential to act as a catalyst for a stronger economy as well as improved performance of the stock market. The finance minister managed to keep fiscal deficit at 3.2 per cent for 2017-18. Besides, there is a lot of emphasis on promoting affordable housing, spending on infrastructure and rural areas. Needless to say, all these steps will lead to inclusive growth and capacity building and that should have a multiplier effect on the economy. Some of the other positives are thrust on digital transactions and broadening of taxpayer base.

Therefore, the moot question now is whether there is a case for increased allocation to equity now. Considering that equity markets are likely to perform well over the next couple of years, there is certainly a case for increased role of equities, either directly or through mutual funds, in the portfolio. However, one should not go overboard. It is important to understand the attendant risks of investing in equities and have realistic expectations in terms of returns.

The basic principles of investing in equities, i.e. considering risk profile and time horizon should be given the utmost priority. It is a proven fact that over the longer term, equity has the potential of providing better returns than other asset classes. Therefore, if one is investing for investment goals like building a corpus for children’s education and retirement planning, a substantial part of the portfolio should be invested in equities. In times like these, there can be a temptation to invest in aggressive funds such as mid-cap and small-cap funds, thematic as well as sectoral funds. However, for a new investor, diversified multi-cap funds should be the mainstay of the portfolio.

Many investors may also face the dilemma of whether to invest directly in stock market or take the mutual fund route. There is no doubt that if one has the wherewithal to select the right stocks, knowing when to buy and sell them, keeping track of domestic and international events that may impact the markets as well as have the time required to do so, investing in stocks directly can be a great option. However, for those who do not have these abilities, entrusting their money to professional fund managers of mutual funds will be a sensible option. These fund managers have the backing of full time research analysts who keep track of events and happenings in domestic and international arena. Besides, being a diversified investment vehicle, mutual funds can be more flexible and tax efficient.

It is quite common to see investors struggling to decide whether to invest in lump sum or take the SIP route. Ideally, it is a combination of lump sum and regular investing that produces the best results as one benefits from a rising market through lump sum investment and from volatility through systematic investing by way of averaging. Of course, for someone who wants to create a corpus over a period of time, SIP remains the best strategy. Remember, staying committed to your defined time horizon can produce amazing results.

DSIJ MINDSHARE

Mkt Commentary28-Mar, 2024

Mindshare29-Mar, 2024

Multibaggers28-Mar, 2024

Interviews28-Mar, 2024

Multibaggers28-Mar, 2024

DALAL STREET INVESTMENT JOURNAL - DEMOCRATIZING WEALTH CREATION

Principal Officer: Mr. Shashikant Singh,
Email: principalofficer@dsij.in
Tel: (+91)-20-66663800

Compliance Officer: Mr. Rajesh Padode
Email: complianceofficer@dsij.in
Tel: (+91)-20-66663800

Grievance Officer: Mr. Rajesh Padode
Email: service@dsij.in
Tel: (+91)-20-66663800

Corresponding SEBI regional/local office address- SEBI Bhavan BKC, Plot No.C4-A, 'G' Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400051, Maharashtra.
Tel: +91-22-26449000 / 40459000 | Fax : +91-22-26449019-22 / 40459019-22 | E-mail : sebi@sebi.gov.in | Toll Free Investor Helpline: 1800 22 7575 | SEBI SCORES | SMARTODR