I want to invest Rs 1 lakh for tax saving goal. Is investing in lumpsum advisable at this point of time or need to I wait for the marketplace to come down or need to I commence a SIP as an alternative? I would like to be invested for more than 5 years in an ELSS fund. Also, how I can diversify my portfolio?
—Ankita Yadav
Investors need to ideally stick to an asset allocation-based method (mix of equity and debt) for investing towards one’s purpose. While fixed earnings lends stability to the portfolio, equities play a important part in wealth generation more than the lengthy run with a prospective to provide superior inflation-adjusted returns compared to fixed earnings. Valuations play a important part though getting into any asset class. Lower valuations cut down the threat of higher future capital loss and boost upside prospective, and vice-versa. Given the cyclical nature of equity markets and higher volatility, invest by means of the SIP route.
ELSS funds are equity-oriented funds providing tax-savings as the quantity invested is deductible below section 80C. However, these involve a lock-in period of 3 years. For other than tax-saving purposes, look at other equity categories for your equity allocation.
Assuming an aggressive threat profile provided a time horizon of 10+ years, you could invest with a portfolio mix of about 80% into equities (Large/Mid/Small-cap/International – 50/10/5/15) and 20% into fixed earnings funds. On the domestic equity side, one can think about flexi-cap or huge and mid cap funds, which can provide allocation across huge, mid and compact caps. International equity allocation provides diversification across geographies and also acts as a hedge against rupee depreciation.
Here one can look at worldwide equity funds that invest across a variety of distinct markets. For investment in fixed earnings, you can think about fixed earnings funds with a higher (safer) credit top quality portfolio such as banking & PSU debt funds, corporate bond funds, brief duration funds and medium to lengthy term funds. Alternatively, based on the investment ticket one can think about hybrid funds which invest in a mix of equity, fixed earnings & other assets categories include things like Aggressive hybrid, Balanced Advantage, and so forth. You can also allocate 5-10% of your portfolio to gold. Gold provides a hedge against inflation and a secure-haven asset in instances of marketplace drawdowns.
The writer is director, Investment Advisory, Morningstar Investment Adviser (India). Send your queries to