For youngsters, who have just started their earnings, investments generally take a backseat as they prefer to spend more on enjoyment. For those who want to start investing, where to invest is always a dilemma.
While one of the factors that motivates new investors is tax saving, investing to fulfill life goals would require investments beyond the fixed-income tax-saving instruments.
As new investors have a long working life to invest, equity is an ideal option for them to generate higher returns in the long term. Moreover, post-lockdown the revival of economic activities has resulted in a market 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.
Apart from equity, it is also essential to allocate some assets in debt to take advantage of market fluctuations and maximise return in the long 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.
After allocating assets in debt and equity in a fixed proportion, it is also necessary to review the portfolio periodically and rebalance the portfolio to restore the debt-equity ratio once it gets skewed.
“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 focus on
For the investors investing in individual stocks or sectoral funds, it’s essential to focus on the right 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.
Rao suggests the following key strategies to invest in 2021 for a stronger portfolio:
- With low-interest rates, investors need to have at least 25 per cent exposure to equity for better returns.
- For Fixed income allocation, AAA and G-sec in the 5 to 7-year segment look attractive. These can be played through dynamic bond funds or Debt MFs having underlying papers in the 5 to 7-year segment. Avoid shorter maturity space if investing with a medium-term horizon in mind.
- For tax efficiency, investors could look at AA and A papers (with a good balance sheet) in the form of MLDs. MLDs also help to lock in returns for a defined time period and give higher yields.
Strategy for salaried investors
Talking on how should the salaried investors having regular income should 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).”