We may make little changes in our existing allocation based on the current market scenario by staying in our respective risk appetite zone, says Mayur Shah, SEBI Registered Investment Advisor and Principal Officer, Ocean Wealth Solutions.
In an interview with MintGenie, Shah insists that people must stop bothering much about economic conditions while investing.
Edited Excerpts:
Q. There is an increasing tendency to adopt the FIRE method among the new generation. Do you think the current state of the Indian economy allows the scope to achieve retirement early in life?
I suggest everyone, try to achieve financial independence (FI) instead of thinking about retiring early. And the simple answer to your question is “YES”; anybody can reach FI in our country if we focus on the things which are in our control than thinking about the uncontrollable things.
We can achieve FI with proper planning, living within our means and self-discipline rather than worrying about the economic conditions which we can’t control.
In this era where life expectancy is growing fast due to rapid development in the medical field you should work on your hobbies or find your IKIGAI meanwhile, so that once you achieve your FI and now you don’t need to earn to pay for your expenses and goals then you may work on the areas of your interest, may turn your hobbies into your profession or may even find a cause to work for instead of retiring early.
Q. Many are investing primarily to save taxes. What approach do you think investors must adopt while choosing where to invest?
Yes, this is very unfortunate but I have seen lots of misselling happening under the name of tax saving and many people end-up by having a number of investments which are not suitable for them and/or even having a bunch of insurance policies which one may not even consider as an investment.
Tax planning investments may be done properly by deciding our investment objectives, time horizon, age, risk appetite, etc. factors and it can also be a part of our overall asset allocation strategy.
For example, if your risk appetite is high and you are investing for a long-term goal then you may choose equity-linked investment products for tax saving purposes, but if you have adequate equity exposure already or you are a very low-risk taker, then you may choose PPF, EPF (voluntary contributions) or similar options for tax planning. You may please avoid investing in an insurance policy for saving a tax.
Q. Many people focus on investments without deciding their financial goals first. What advice would you lend to such investors?
Considering the growing life expectancy, we have to make provisions for a prolonged period, so if we are retiring at the age of 60 then will have to make future provisions for at least 30 more years. We must also factor in the inflation and lifestyle inflation for this period. We don’t have to be extraordinarily intelligent to understand that we require big money to live comfortably till the end.
Hence, we also need to understand that the objective of investing is much larger than merely a tax saving.
So first, decide your financial goals, calculate the time period you have to accumulate the money, the actual requirement of funds when goals will due be by considering inflation, your risk appetite, etc. factors and then decide your equity, debt and other sectors allocation and after that select an appropriate product from each category for investing.
Q. What's your take on investing in fixed deposits now?
All investment products are good if they are selected by understanding our requirements and considering their advantages and disadvantages.
If we are investing for a goal which is due may be in a year or two, then irrespective of the prevailing interest rate cycle (i.e., whether fixed deposits are offering high or low interest), one may choose FDs for investments. Those in a high tax bracket may choose an Arbitrage fund over an FD for the above goal.
And if we are investing for a goal which is due in three to four years and/or for our long-term goals’ debt allocation then we may choose conservative hybrid mutual funds rather than FDs as it will help us not only to save tax (as we will have to pay inflation-adjusted tax upon withdrawal) but also to do rebalancing regularly.
Q. Which sector(s) should one invest in amid the current market scenario?
In an attempt to stabilise the economy, the RBI has increased repo rates very frequently in the recent past and hence, we are in a high-interest rate cycle, considering the stable demand for housing projects, I think housing financing companies and banking sectors may do well. The automobile sector may do well as its enjoying a consistent level of demand. One may look at the FMCG sector to avoid too much volatility. However, the above are the not only sectors which may do well.
Equity mutual fund investors may think of increasing their SIP/STP amounts or doing some lumpsum investments in funds having a benchmark of NIFTY SMALL CAP 100 and other non-thematic Indexes that fall in more than 25 per cent from their all-time high.
We may do little changes in our existing asset allocation based on the current market scenario by staying in our respective risk appetite zone.
Q. What is one key piece of advice you give to manage money if a recession is coming?
My suggestion to all investors is to stop bothering much about economic conditions because we will see many changes in it during our lifetime. Please give more importance to your personal financial life and your goals. Focus on the planning area more, prepare your budget, track it on a regular basis, share all financial details with your spouse, first have an adequate emergency fund and then start investing for your goals.
Remember, we have to live comfortably not only today but also in our retired life which is also called as golden days of life. Accordingly have the plan to live comfortably today and for making your retirement the actual golden days of your life, may take the help of qualified advisors if required, take enough insurance coverage, etc. all such actions and your continuous cautious efforts will make you financially strong, comfortable and stable to face any economic condition.
