As the New Year has just commenced, this is the time of new beginnings. Investors, therefore, can explore to invest in newer avenues at the start of this year so long as they have a significant amount to spare.
Let us suppose that someone has an access to ₹5 lakh investible corpus — what exactly can one do with it to maximise its returns without having to worry too much about the long-term plans.
We spoke to a number of experts and sought their opinions on what is actually a hypothetical situation, but quite similar to what we face on a day-to-day basis.
A New Year is seen as a starting point for all the good things that we want to do. From taking care of our health to inculcating new habits and leaving the bad ones to improving our financial situation – dawn of a New Year is seen as a good starting point.
Most of us tend to relook at our finances at this point of the year, and take concrete steps in our investment journey.
Preeti Zende, a SEBI-registered investment advisor and co-founder of ApnaDhan Financial Services, said, “At the beginning of the year if you have any lump sum and wonder where you invest it then the simplest way is to invest the amount as per your financial goals. For example, if you have ₹5 lakh, you can invest this amount as per the time horizon required for your financial goal.”
Based on time horizon
How should you allocate ₹5 lakh to a variety of assets should be partly determined by the time period for which investment is made. For instance, if the investment is made for a year or two, then investors can choose a fixed deposit, but as the time period stretches, one can increase the proportion of debt funds, liquid funds followed by balanced funds and index funds.
“If you want to use this amount as a down payment for a car or going for a vacation or doing a house renovation in a couple of years then you should stick with the fixed deposit. If the time horizon is 3 years, then short-term debt funds or liquid funds can also be used for better taxation,” says Ms Zende.
For mid and long term
She further adds that investors can increase the allocation to hybrid equity or balanced funds if the goal is mid-term. And investors who want to invest for the long term can explore index and flexi cap funds.
“If you want to invest for your mid-term goals then you can add hybrid equity or balanced funds along with debt funds. If you want to invest this amount for long-term goals then invest 60-65% of this amount in index funds, flexi-cap funds, and mid-cap funds and the remaining amount can be invested in gilt funds,” she said.
Based on risk profile
One of the timeless lessons of investing is that it should be based on an investor's risk profile and one should ensure to follow diversification and stick to asset allocation, advise financial advisors. Diversification helps minimise the pain of investing in loss-making funds and offsets the loss through profit-making investments.
“We always recommend to any investor that investing should be based on your risk profile.
New investors would have experienced this last calendar year when large cap equity delivered very low single digit return and mid and small cap gave negative return, debt also has very low single digit return but gold outperformed all asset classes by giving 11 percent return,” said CA Nitesh Buddhadev, founder of Nimit Consultancy.
A diversified portfolio
|Asset Class||Amount (Rs)|
|Mid and small cap||1 lakh|
|US equity||1 lakh|
(Source: As recommended by CA Nitesh Buddhadev)
CA Nitesh Buddhadev says that if someone is looking for long term, “One should invest ₹1 lakh in Gold (Gold MF), 1 Lakh in mid and small cap mutual funds, ₹1 lakh in Nasdaq (US Equity) and ₹2 lakh in balanced advantage funds (or dynamic asset allocation fund).”
While explaining the reasoning for this break-up, he says that equity would have a period of time correction this year and dynamic asset allocation strategy works well. Also, mid and small have already corrected, thus giving a good buying opportunity when compared to their long-term counterparts.
Besides, gold is likely to do well this year, he says, due to the high inflation era. He also says that the US equity has corrected significantly and is now available at attractive valuation and will further become attractive after rupee’s depreciation.