Make Your Money Grow In Real Terms

Make Your Money Grow In Real Terms



Hemant Rustagi Chief
Executive Officer, Wiseinvest Pvt Ltd. 

Investing is essential for achieving your financial goals. However, it is equally important to invest judiciously in a manner that not only allows you to create a balance between risk and reward but also make your money grow in real terms. Needless to say, to achieve this you must choose the right asset class for each of your goals and an efficient investment option that has the potential to get you the best from that asset class. If you want to ensure investment success for your long-term goals, here are three key decisions that will put your portfolio on track to achieve it.

Include ELSS in your Portfolio

If you have been following strategies like either investing in any eligible option that comes your way at the fag end of the financial year or relying mainly on traditional options like five-year bank fixed deposit, investment-cum-insurance products, National Savings Certificate and Public Provident Fund, it’s time to change that. Remember, this approach undermines the role these investments can play in your portfolio. Although traditional tax-saving options provide safety of capital, they offer low returns i.e. both pre and post-tax and that makes you compromise on your ability to generate a large enough corpus to achieve your long-term goals.

Mutual funds have an important role to play here. Equity Linked Savings Scheme (ELSS) of mutual funds qualifies for tax exemption under Section 80C of the Income Tax Act. An ELSS is perhaps the best way to achieve the dual objectives of benefiting from the growth in the stock market as well as save taxes while doing so. As a product category, ELSS has given handsome returns over the years. Of course, being equityoriented, these schemes carry the attendant risks that are associated with any equity investment. However, if you follow a disciplined approach of investing through a systematic investment plan (SIP), you not only minimise the impact of volatility on your investments but also benefit from averaging over time. 

Increase Allocation to Mid and Small-Caps

If you already have equity funds in your portfolio but with a bias for large-caps, it’s time to rebalance your allocation to different segments of the market. In the current scenario, with quarterly GDP contraction almost ending, the Union Budget 2021 providing impetus to the economy, increase in GST collection, power consumption being at an all-time high and India’s manufacturing PMI and bank credit growth rising, it is evident that the mid and small-cap segments are likely to do better than their large-cap counterparts. Many smaller companies have adapted and embarked on prudent cost-cutting measures and cleaned up their balance-sheets by reducing debt. 

Moreover, redefining MSMEs will help their growth by making it easier for them to have access to credit through the formal financial system. Even in terms of valuations, these two segments appear to be quite attractive. While Nifty is up 46 per cent from its mid-Jan 2018 levels, Nifty Mid-Cap 100 is up only 7 per cent whereas Nifty Small-Cap 100 is still down around 17 per cent. While investing in these two relatively aggressive segments of the stock market can be more risky, a professionally managed diversified investment vehicle like mutual fund not only allows you to invest in quality stocks but also reduces volatility risk to a large extent.

Investing In International Funds

It would be a good idea to invest a small part of your portfolio in international funds, if you haven’t invested already in them. That’s because geographical diversification adds a new dimension to the level of diversification in your portfolio. In fact, mutual funds provide you a few options to get exposure to international markets. There are funds of funds investing in offshore funds. Then, there are funds investing directly into international stocks as well as those investing in a combination of domestic equities and international stocks to the tune of 20-35 per cent to keep equity fund status for tax purposes. Currently, you can consider investing in the US as well as emerging markets.

 

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