Markets
BSE See NSE See 39,434.94
311.98 (0.8%)
collapse Related Readings collapse

When Opportunity Knocks, Open The Door!

| 4/5/2012 9:00 PM Thursday

While it is essential to have a considered asset allocation model as part of your long-term investment plan, the model must also be flexible enough to account for changes in the evolving situation of the economy and budgetary policies. Here’s a look at the investment options that you can benefit from in the current fiscal.

  • ELSS can continue to be a part of your portfolio plan for the next financial year, since the Direct Tax Code (DTC) is going to be implemented from April 2013.
  • The Union Budget 2012 has introduced the Rajiv Gandhi Equity Savings Scheme, which would allow first time investors an income tax deduction of 50 per cent for investments of up to Rs 50000 in direct equities.
  • Fixed Maturity Plans (FMPs) will continue to remain an attractive option for those who are sure about their time horizon. Remember that FMPs are much more tax efficient than traditional investment options like fixed deposits and bonds.

Investing to achieve different goals over different time periods is a process that requires an investor to have an investment plan and a strategy to implement it effectively. An asset allocation strategy can ensure that one’s investments remain on track over different time periods.

While sticking to a carefully designed asset allocation model helps in avoiding any haphazard decisions, realigning your portfolio within an asset class to benefit from opportunities provided by factors such as the emerging interest rate scenario, changes in tax laws, regulations as well as announcements made in the Union Budget can make a huge difference to the portfolio returns. Therefore, as an investor, you must keep an eye on these changes and have enough flexibility in your portfolio composition to benefit from them.

Here are some of the opportunities that you must consider while making investment decisions during the current financial year:

Continue To Invest In ELSS

Since the Direct Tax Code (DTC) is going to be implemented from April 2013, Equity Linked Savings Schemes (ELSS) will continue to exist for one more year. Hence, let ELSS be a part of your tax planning. If you are a first time investor, investing through SIPs would be an ideal option for you.

Rajiv Gandhi Equity Savings Scheme

If your annual income is less than Rs 10 lakh and you are open to taking the plunge into the stock market for the first time, you can opt for the Rajiv Gandhi Equity Savings Scheme (RGESS) that has been introduced in the Union Budget 2012. The scheme would allow for income tax deduction of 50 per cent for investments of up to Rs 50000 in direct equities. Being a tax saving instrument, it will have a lock-in period of three years. Needless to say, you will have to be careful about the stock selection. Once the details are out, it would be easier to work out a strategy to invest through this scheme.

Tax Free Infrastructure Bonds

During the last financial year, i.e. 2011-12, tax free infrastructure bonds provided an excellent long-term investment opportunity for investors. These bonds were issued for tenures of 10 and 15 years. Moreover, the high interest rate regime also ensured attractive tax free annualised returns in the range of 8-8.35 per cent.

These bonds scored high on safety, predictability of returns and liquidity through listing on the stock exchanges. Besides, it was a real bonanza to be able to invest in debt instruments for such a long-term period without having to worry about the implications of interest rate movements on your investments. It is important to know that these bonds are different from infrastructure bonds that entitled you for a tax benefit of Rs 20000 under Section 80CCF.

In the Union Budget 2012, the Finance Minister has doubled the target for these bonds to Rs 60000 crore. Therefore, make sure that these bonds remain in the contention for long-term allocation to debt instruments in your portfolio. Considering the emerging interest rate scenario, it is quite likely that these bonds will offer lower returns than those offered last year. However, for investors in the higher tax brackets, these bonds will continue to remain quite attractive as the returns are tax free.

FMPs And Short-Term Bond Funds

With a fiscal deficit of 5.90 per cent for the current financial year and a projected deficit of 5.19 per cent for the next financial year, it is highly unlikely that the RBI will go in for aggressive rate cuts. In a situation like this, Fixed Maturity Plans (FMPs) will continue to remain an attractive option for those who are sure about their time horizon. Remember that FMPs are much more tax efficient than traditional investment options like fixed deposits and bonds.

However, if you are not in a position to lock your money in for a fixed period, as required by FMPs, ultra short-term bond funds as well as short-term bond funds are good options to consider for higher and tax efficient returns as compared to traditional investment options.

Those investors who have been thinking of investing in income funds to take advantage of a reversal in the interest rate cycle should note that the risk-return matrix has turned unfavourable for the short term.

Hemant Rustagi
CEO, Wiseinvest Advisors

 

Find More Articles on: DSIJ Magazine, In Focus, Personal Finance, Mutual Funds

news letter

More for the early bird.

Get the post-market reports and breakfast news right in your inbox. See latest »

DSIJ Mindshare

Torrent Power shines on the bourses

Vinayak Gangule / Article rating: 5.0

Torrent Power sparked in Tuesday’s trading session as it informed bourses that it has received an approval from Gujarat Electricity Regulatory Commission (GERC) for the power procurement arrangement of 278 MW between the company's UNOSUGEN Power Plant (capacity of 382.5 MW) and its Licensed Distribution Business for cities of Ahmedabad, Gandhinagar and Surat.

12345678910Last

Tiger Logistics topline to grow by 10%--buoyant over infra sector status to logistics sector

Tiger Logistics topline to grow by 10%--buoyant over infra sector status to logistics sector

Logistics sector will play a vital role in making the concept of ‘Make in India’ a success. This will be further aided by some of the recent steps taken by Government of India such as granting of infra sector status to logistics sector.

Best and worst Performing Sector Funds of Year 2017

Best and worst Performing Sector Funds of Year 2017

As the year-end has approached most of you are eager to know the mutual fund movers and shakers of the year 2017. Read on to find the performance of various sector dedicated funds.

Markets may start positive, but volatility likely due to F&O expiry

Markets may start positive, but volatility likely due to F&O expiry

The start of the F&O expiry day is likely to be in the green, but volatility may creep in with the progress of the session. The SGX Nifty suggests that the Nifty could open at 10,525 with gains of 32 points at the opening bell. 

Pidilite announces buyback of Rs 500 crore

Pidilite announces buyback of Rs 500 crore

The buyback offer comprises purchase of up to 50,00,000 equity shares. The buyback offer size comprises 0.975 per cent of the total paid-up equity capital of the company.

Bank Nifty drags markets to close in the red

Bank Nifty drags markets to close in the red

The late session fall in Bank Nifty changed the direction of the market, leading to a marginal fall in the benchmark indices. Bank Nifty yet again resisted at its multiple point downward sloping trendline level at 25733.

Six major underperforming MF schemes having higher expense ratios

Six major underperforming MF schemes having higher expense ratios

Mutual funds with a large size of assets under management (AUMs) are supposed to have lower expense ratios. However, there are schemes with large AUMs but having higher expense ratios and generating lower returns. 

Nifty Pharma supports market; Sun Pharma at bullish reversal

Nifty Pharma supports market; Sun Pharma at bullish reversal

Nifty Pharma index has come in as the healer in an otherwise sluggish market. Index has given a consolidation breakout at the 9420 level today and if the it sustains 9420, followed by 9628 on the upside, it has a long way to go.

Ten stocks close to their 52-week low

Ten stocks close to their 52-week low

Following stocks are close to their 52-week low as at 12.35 p.m. on December 27.

Ten stocks close to their 52-week high

Ten stocks close to their 52-week high

The markets on December 27 opened gap down. BSE Sensex is trading at 34,068.15, up by 57.54 points and the Nifty is trading at 10,539.45, up by 7.95 points.

Five stocks with selling interest

Five stocks with selling interest

Overall volumes in futures & options currently stand at 62.75 lakh contracts with a turnover of Rs. 5,19,204.72 crore.