For youngsters, who have just began their earnings, investments typically take a backseat as they choose to invest more on enjoyment. For these who want to start off investing, exactly where to invest is often a dilemma.
While one of the elements that motivates new investors is tax saving, investing to fulfill life targets would demand investments beyond the fixed-earnings tax-saving instruments.
Equity
As new investors have a extended working life to invest, equity is an excellent choice for them to produce greater returns in the extended term. Moreover, post-lockdown the revival of financial activities has resulted in a market place rally that pushed the Sensex above 50,000 level.
“New investors should consider being overweight on equities as an asset class. Currently, we are in an economic recovery and earnings upgrade cycle, which is finding strong policy support and in such an environment, equities tend to outperform other asset classes. We would suggest 60 per cent allocation to Large-cap and 40 per cent to Small- and Mid-cap. We believe there are still some value plays to be found in the Small- and Mid-cap space even though the market has rallied,” says Nitin Rao, CEO – InCred Wealth.
Debt
Apart from equity, it is also critical to allocate some assets in debt to take benefit of market place fluctuations and maximise return in the extended term.
“If a new investor wants to invest in debt we would recommend taking exposure in MFs and papers in 5-7 years maturity segment or invest in AA or A (strong balance sheet) papers up to 35 per cent of the portfolio. Avoid short term papers from a medium-term investment perspective,” says Rao.
Portfolio rebalancing
After allocating assets in debt and equity in a fixed proportion, it is also required to assessment the portfolio periodically and rebalance the portfolio to restore the debt-equity ratio when it gets skewed.
Mutual Fund Investment: Should you do asset allocation your self or opt for hybrid funds?
“Following the basic principles of asset allocation and regularly rebalancing the portfolio remains essential, hence we suggest that existing investors should follow the same principles as given above and rebalance their portfolio to that effect,” says Rao.
Sectors to concentrate on
For the investors investing in person stocks or sectoral funds, it is critical to concentrate on the correct sector to maximise returns.
“In terms of sectors, Financials and Healthcare are better placed at the moment. Given the rapidly evolving Indian consumer spend and discretionary consumption, Consumer and Consumer-Tech also show promise for a long-term investor,” says Rao.
Key techniques
Rao suggests the following important techniques to invest in 2021 for a stronger portfolio:
- With low-interest prices, investors require to have at least 25 per cent exposure to equity for improved returns.
- For Fixed earnings allocation, AAA and G-sec in the 5 to 7-year segment look appealing. These can be played by way of dynamic bond funds or Debt MFs obtaining underlying papers in the 5 to 7-year segment. Avoid shorter maturity space if investing with a medium-term horizon in thoughts.
- For tax efficiency, investors could look at AA and A papers (with a fantastic balance sheet) in the kind of MLDs. MLDs also aid to lock in returns for a defined time period and give greater yields.
Strategy for salaried investors
Talking on how must the salaried investors obtaining normal earnings must invest, Rao says “Salaried individuals can opt for either (a) staggered investments with buy on dips strategy or (b) could also consider SIPs (Systematic Investment Plans) or STPs (Systematic Transfer Plans).”