Investment outlook for 2015 : The Tribune India

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Investment outlook for 2015

How should one plan his finances in New Year keeping in mind the rules of financial planning?

Investment outlook for 2015


Anil Chopra

Q. How should one plan his finances in New Year keeping in mind the rules of financial planning?

A. The number one rule of financial planning is to articulate your future financial goals, evaluate various options to achieve those goals, decide your asset allocation and then stick to the same. If you are already following a well documented financial plan then you must monitor the same regularly and rebalance your portfolio to ensure that asset allocation is in place.

Q. For a beginner, what would be your advice and how should he start?

A. For a beginner, it is important to list your immediate and future financial goals. Adjust your goals for expected inflation in future and then work backwards to find out the amount required to be invested on a monthly basis in order to achieve your future financial goals comfortably. Mutual Fund SIPs are the best route to fulfil many common goals like retirement, children's marriage, their education and acquiring an asset like a home or a vehicle. Also, it is important to protect oneself with a suitable term-plan and a health insurance policy.

Q. Which thumb rules should one follow when going to buy any financial product like ULIP or an insurance policy?

A. Before buying a ULIP or any other insurance policy, it is important to calculate the adequate amount of protection cover required to maintain the lifestyle of family/dependents in case of an unfortunate event. As per thumb rule, 10 times of your annual earnings should be the sum assured of various life insurance policies which could be a combination of term-plans/ULIPs/traditional insurance policies.

Q. Since the stock market has already factored in a lot of positive signals and is on a high, what should an investor expect as far as return is concerned and what should be his strategy?

A. Strategy for investing in equity markets should be primarily through mutual fund schemes and preferably through SIPs and the time horizon has to be long enough, minimum 5 to 7 years and longer the better. Indian economy is going through a positive and dynamic phase and a return of 12- 15% per annum can be anticipated on a long-term basis. If the goal is approaching in 1-3 years, one should stay away from equity markets.

Q. Physical gold has given negative 8% return whereas gold ETFs were almost flat in 2014. How should an investor see gold as an investment asset in 2015?

A. As far as gold is concerned, it is only a hedge against inflation and the allocation to the same should be in the range of 5% to 10% of total financial portfolio. If your actual current investment in gold is outside these limits, you may consider investing or divesting in gold or gold ETF.

Q. In 2014, small and midcap mutual funds over-performed the large caps, is it prudent for investor to rebalance portfolio in favour of small and midcap funds in 2015?

A. Portfolio must be constructed by keeping a healthy mix of various sectors of the economy at all times. In terms of caps, around 40 to 50% should be invested in large cap funds, 20 to 30% in mid-cap and small-cap funds and balance in flexi cap/value/thematic funds like infrastructure, contra or international equities etc.

Q. As due to change in tax regime, the debt fund investors got a setback in 2014, what should be the strategy if one (low-risk investor) wants to invest majorly in debt funds?

A. Debt funds are now suitable for such risk-averse investors who are ready to wait for three years. As an alternative, even capital protection oriented funds may also be considered if the time horizon is 3- 5 years. However, for investors in 0% tax bracket (non-taxpayers) debt funds are suitable even for shorter duration also.

Q. For investors interested in real estate, what would be the advice? Are we going to see correction in property prices or those will remain at current level?

A. Real estate markets have already witnessed significant correction in the past one year and the downward risk is limited. Prices are expected to move upwards from second half of 2015 by when the interest rates are also expected to come down leading to revival in economy.

Q. If one has to decide about taking loans, what should he do, wait for a couple of months or finalise the deal?

A. It is not possible to time the market accurately. Loan should be taken as and when the specific property has been identified and one can opt for floating rate of interest to take the advantage of reduction in interest rates in times to come.

Q. What should be the topmost New Year financial resolution?

A. Topmost New Year financial resolution has to be to remain disciplined and to stick to asset allocation without falling prey to greed or fear.

The author is Group CEO & Director, Bajaj Capital Ltd. The views expressed in this article are his own

 

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