Planning, investing and tax saving: Here's how to start FY 2018-19 on a great note

Your initial moves in the new financial year can determine how beneficial it will be for you. So, what should you do?

Planning, investing and tax saving: Here's how to start FY 2018-19 on a great note

How did you spend the last few weeks? Did you, like most people, run around, sorting out your expenses and meeting with financial advisors, looking for a way to reduce your tax liability? It’s quite routine; every year at this time, people scramble to get their finances in order and tally up their investments so that their salaries for the next few months are not affected.

With the new financial year upon us, the time is perfect to make your money plans for the rest of FY 2018-19. The financial goals you set now, at the beginning of a fresh year, and the way you go about achieving them can determine how much money you end up making at the end of this fiscal. Decide wisely.

The 2018-19 Budget has laid down new cornerstones that are bound to influence investment plans for people and companies. On a broader plane, there were more significant policy decisions about rural growth, healthcare and the MSME sector, while on a micro level, it impacted people from different walks of life. For instance, those dealing in stocks were a little unhappy over the controversial 10% tax on Long-Term Capital Gains (LTCG).

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Previously, investors would often hold on to stocks over a long-term – i.e. more than 12 months. This was because as per the 2004-05 budget, profits on such long-term assets was non-taxable. On the other hand, short-term gains (or profits from the sale of assets held for less than a year, attracted a 15% tax).

Now, however, with the 10% tax on LTCG, investing in stocks to make some quick money from selling them after a year may not seem a profitable venture. Additionally, holding on to securities over a long-term involves carrying a risk burden for a longer period. Maybe this is an area you should flesh out with your financial advisor if you have one. If not, and if you are a new player in the capital market, keep it in mind.

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Investment Options

However, basing your investment plans solely on the budgetary announcement is a bad idea. There are still areas that you can explore to make this year a financially rewarding one – if not with immediate returns, then through financial decisions that will fetch you rewards sometime in the future. Let us consider some areas of investment that you could pursue in 2018.

Equities: Remember, growth and development of financial markets is not dependent on the tax regime of a country, they depend on factors such as the overall performance of the economy, plus the underlying fundamentals of listed companies such as their earnings growth, and external factors such as political stability etc. Indian capital markets are passing through a multi-year bull run, and for investors, they are still an excellent bet. Why not look at how the companies in the agricultural and healthcare sectors are doing?

Re-check asset allocation, and transfer funds from non-performing schemes to the ones that are performing well or are expected to grow. You could also look at leading companies in sectors such as infrastructure, logistics, housing, data connectivity and management, financial services, rural and consumer products. These are areas that will see a dynamic growth as India grows, and are likely to get a push from the Government. For instance, real estate projects focusing on affordable housing promise healthy returns despite the sluggishness in this sector, and companies managing to execute projects will always remain good investment options.

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A suggestion: you can invest in a portfolio of select stocks, preferably handpicked by a financial advisor, from the sectors that are most likely to see growth in the immediate future; it pays to invest in a portfolio rather than individual stocks.

Commodities: Gold is a historically preferred investment asset for Indians, given its durability and deep-seated position in our society and culture. As a financial asset, it is a natural hedge against uncertainty; plus, it is rising over the past few years. Also, unlike real estate, it is easy to offload during financial emergencies.  

Other commodities you could look at are metals other than gold are agricultural products such as sugar and tea, all currently going through a bullish phase. But if dabbling in commodities, it is advisable to keep an eye on global trends, as they tend to have a bearing on commodity trends at home.

Liquid assets: You should always keep aside a portion of your investible funds towards bank deposits, treasury funds or any safe asset that comes with complete flexibility. However, do note that some of these instruments may come with a penalty on premature withdrawals. It does not matter whether you are averse to risk or are an aggressive investor who takes chances; liquid money or a liquid asset is a must. Having access to immediate funds can be very helpful during adverse situations, or when a new investment opportunity open up suddenly.

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Financial Discipline

Actual investments apart, there are steps that you should take to ensure financial discipline through the year; if you succeed, you will find yourself in a happy zone financially at the end of it. The following are some financial habits that you could look at inculcating:

1. Early Tax Planning: Another fiscal year has begun, and the last-minute rush to get your tax-saving investments must be fresh in your mind, that mad scramble to raise money leaving a severe cash-shortage in February and March. But this would not have happened if you started investing right at this time, last year. After all, you always knew how much investment was required, right? Of course, you can use lump sum amounts like your bonus to invest in a tax-saving instrument. But what happens if you don’t have a lump sum amount? Investing small amounts monthly, in investment products such as SIP in ELSS, ULIP, PPF, NPS etc.

2. Tab on Expenses: Prepare a budget, list all your fixed expenses such as rent, EMI, utilities etc., check if any utility payment can be eliminated or reduced. Fix a saving goal and see how much money you want to save. Keep track of all your expenses – even the smallest of them like the soft drink you buy every day during lunch at work – and check how much you can cut down. This will not only help instil financial discipline but will also enable you to start a ‘savings budget’ instead of an ‘expense budget’.

3. Caution with Plastic: We tend to overuse our credit card; we don’t feel the pinch when we pay with plastic. If you want to keep your expenses on a tight leash, go slow with your credit cards, and set a monthly limit on its use. Or even better, swipe your credit cards only during absolute emergencies. Another option is to preload your e-wallet with a budgeted amount and spend only that amount through the month. This will prevent you from overspending. 

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Staying Debt-free: This is a no-brainer: squaring off debt on time, or even before the due date, will help you achieve financial stability. From time to time we come into some petty cash unexpectedly – a payment that was due to you, for instance. Why not settle a debt if the amount covers it, or at least make a small payment of the due amount? Also, stay on top of your EMIs.

Financial Goals: Whether you make an investment or play safe and save for a better future, it is advisable to adopt a goal-based approach. You could be eyeing a new home, a car or creating a fund for your kid’s higher education – whatever it is, set a time limit for the target and work towards it.

A tip: equity funds are a great way to achieve such goals; calculate what you need to save every month to reach your target, and then start monthly SIPs of those amounts.

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Last words

Whatever you do, you should always strive to throw a protective net around your family – financially. Spiralling healthcare costs have made medical care often prohibitively costly, so get a reliable health policy for yourself and your family. If you are going for life insurance, choose for a pure term policy with a sum assured of at least 10 - 15 times your annual income.

Disclaimer: This article is intended for general information purposes only and should not be construed as investment or insurance or tax or legal advice. You should separately obtain independent advice when making decisions in these areas.


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