Things to keep in mind while planning investment roadmap in new financial year
As March 31 approaches, most of us tend to get tied up in making tax-saving investments before the closing of the financial year. However, few of us tend to take note of the fact that it also heralds the beginning of a new financial year and instead of focusing only on claiming tax breaks under Section 80C of the Income Tax Act, this is the time to lay down the roadmap for your finances for the new financial year.
The beginning of the financial year may not be as big a cause for celebration as the beginning of the calendar year but it certainly helps to perceive it as a fresh start on the financial front. This is especially relevant if you had made resolutions in January to take steps to improve your financial health and that fell by the wayside. Gauging a crystal clear picture of your income, liabilities and your expenses is the first stepping stone to drafting an appropriate investment strategy for the year. Seema Kaushal, a chartered accountant based in Jamshedpur narrates, “There is no point in making drastic shifts to your investment plans without taking into account the changes that may have happened in terms of your income, your expenses, your goals and their timelines and your liabilities. Ideally, a reformulation of the family budget should be done every year and I have been diligently following this practice for years now.”
A review exercise at the beginning of the financial year is also vital if you have a high debt liability. EMIs and credit card debt if left to pile on for long can be a serious cause of financial drain and limit your ability to invest money in appropriate avenues. Kaushal says, “This is that time of the year when many employers grant annual bonuses to their employees and that extra income can be a great way to curtail your debt burden especially the loans which are expensive. I have been observing this rule too and not only does it help in better debt management but also reduces the chances of the bonus drying up due to unnecessary expenses.”
Another important chapter that should be included in your new financial year roadmap is tax planning. Often the tax planning ritual gets relegated to the back burner and investors only pay attention to it when the March 31 deadline approaches. This can create room for misadventures and end up causing financial losses because in a hurry you may not have the time to deliberate on whether a particular tax-saving instrument is right for you. Instead, making tax planning a round-the-year activity can keep it aligned with your overall financial plans and goals and also save you from last-minute hassles of investing in tax-savers for claiming deductions under Section 80C. Starting an SIP in an equity-linked savings scheme (ELSS) at the beginning of the year itself can be a judicious way to ace your tax planning goals and will also help in capital appreciation.
After you have crossed the stage of analyzing your income, expenses and liabilities, the next step would be to review your goals and check whether the performance of your investments for those goals have been optimum. You may need to make shifts if your goals have changed or are approaching. For instance, if you have equity-heavy investments for a goal which you aim to accomplish this year you can consider moving it gradually to debt instruments to ensure that your capital is safe at the time of redemption. If you have goals which have changed or shelved then changing the investment plans is necessary to ensure that your money is not unnecessarily stashed in redundant investments. Debt investments for goals that have been postponed or dropped altogether can be moved to equity to supplement investments for long-term goals. Besides these, you should also take into account the overall risk factor of your portfolio that will be brought about by these changes and also if the asset allocation has deviated from your predetermined range in the financial year that has gone by.
Shalab Gupta Bibhab, founder of Bibhab Capital advises, “The new financial year starts with markets poised at a decent level after a brutal correction. Every investor while planning has to check whether his/her basic requirements are covered and if he has enough resources in liquid mutual funds to meet any emergency requirements. Then comes 80C planning, if not covered then SIP in ELSS schemes should be started for the deficit amount. Next if you are a salaried individual, and have gotten a good hike then 50% of that hike should go to increasing your SIP's. With markets at these levels where it will become very stock/sector specific, adding a few sectoral themes to the portfolio could be a smart move. Apart from this index funds are a judicious choice and if you do not have it in your portfolio already, you should consider buying it.”
- The start of the financial year is also the time to double check whether you and your family members have adequate life as well as health insurance coverage. Insurance policies play a crucial role in safeguarding your and your family’s future and they should not be treated as mere afterthoughts in your financial plan.
- Check the changes in tax slabs, bank interest rates that may have been implemented in the new financial year and evaluate how it impacts your overall financial plan.
- Every investor while planning has to check whether his/her basic requirements are covered and if he has enough resources in liquid mutual funds to meet any emergency requirements. Then comes 80C planning, if not covered then SIP in ELSS schemes should be started for the deficit amount.
This article is part of the HT Friday Finance series published in association with Aditya Birla Sun Life Mutual Fund.