- Date : 17/01/2020
- Read: 5 mins
India’s growth story continues to be strong. You should look at participating in this growth in 2020 through smart investment choices. Ensure that your portfolio for 2020 includes the instruments listed below.
As the new year rolls in, it brings with it a promise of growth. Here are some investment instruments that you can consider if you wish to participate in this growth.
1. Midcap equity funds
You can consider an investment in midcap equity funds in 2020, with a time frame of three years. Midcap stocks underwent a correction in 2019, and are priced economically at the moment. The discount in the P/E ratio of midcaps to large caps is at a seven-year-high now, making the upside very attractive. Mutual fund investments should form a key part of your portfolio, especially if you do not have enough funds to diversify investments into bespoke equity.
2. Gold
Many consider gold an obsolete form of investment, but experts opine that gold as an investment should form about 10% of your portfolio. It not only helps with diversification but can also generate healthy returns over the long term. The yellow metal is expected to hit Rs 41,000 to Rs 41,500 per 10gm by Diwali 2020. Keep in mind that you no longer have to invest in physical gold, you can also invest through gold ETF and sovereign gold bonds.
Related: Factors that affect gold prices in India
3. ULIPs
Unit-linked insurance plans allow you to combine the benefits of an investment instrument with an insurance cover. Withdrawals from a ULIP are tax-free and do not attract any capital gains taxes. Further, ease in switching funds lets you alter your strategy based on the market dynamics and your own investment goals. Most insurers have dropped premium allocation charges, and are returning the mortality charges on maturity, making ULIPs an attractive investment option for 2020.
Related: 5 ways to assess your finances this New Year
4. Debt Mutual Funds
Total asset under management for mutual funds in India hit Rs 27 lakh crore in November 2019, recording a year-on-year growth of 15%. For the twelfth month straight, SIP inflows were over Rs 8000 crore. Growth in November was driven by inflows in debt funds. While debt funds have a risk exposure close to that of fixed deposits, they offer a much larger upside. This makes debt mutual funds a great way of parking your excess funds, both with a short-term or a mid-term horizon. SIP investment can be a great way of making a regular investment into mutual funds. Remember that the key to building wealth is making small but regular investments.
Related: FAQs about Mutual Funds
5. Public Provident Fund
The government has kept the interest rates on small savings schemes unchanged for the third quarter of this year. This makes PPF an attractive option for small investors who are seeing banks cut down interest rates following multiple rate cuts announced by the RBI. A tenure of 15 years ensures that your investment is compounded, resulting in higher yield. Further, after the requirements are met, you can also avail of a loan against your PPF.
Related: 8 Money tips for women in the New Year
6. Exchange-Traded Funds
ETFs are a type of pooled investment funds that passively track an index by holding securities in the same weight as the underlying index. This gives the investor a huge advantage in terms of cost-efficiency. The expense ratio for ETFs is typically under 0.5%, which is substantially lower than the 2–2.5% for actively managed funds. This saving can result in a substantially higher payout in the long run. Remember that markets tend to be efficient over time and no manager can be expected to outperform the market (Efficient Market Hypothesis). This makes ETFs a better choice if you have a long-term horizon to work with. As the equity markets are expected to perform well in the year ahead, an investment in ETF can generate good returns
Depending on your investment strategy, you can also consider investing in equity-linked saving schemes. Investments made in ELSS are tax-deductible under Section 80C of the Income Tax Act. These have a lock-in period of three years – the lowest among all the instruments available under Section 80C.
Related: 10 Tips to continue sticking to your New Year's resolutions
Further advice
Given that the long-term prospects of the Indian market are strong, you should consider direct investment into stocks as well. Unlike investing through funds, this would require you to analyse the fundamentals of a company before you make the right investment. It is best to start by investing in industries you are familiar with – this will increase the chances of picking a winner. Do not try to time the market; instead select stocks that can withstand downturns without going bust.
It is important to remember that get-rich-quick schemes are almost never worth the risk they carry. Always aim to balance your portfolio so that you can withstand any market shocks without losing your capital.
Disclaimer: This article is intended for general information purposes only and should not be construed as investment or tax or legal advice. You should separately obtain independent advice when making decisions in these areas.
As the new year rolls in, it brings with it a promise of growth. Here are some investment instruments that you can consider if you wish to participate in this growth.
1. Midcap equity funds
You can consider an investment in midcap equity funds in 2020, with a time frame of three years. Midcap stocks underwent a correction in 2019, and are priced economically at the moment. The discount in the P/E ratio of midcaps to large caps is at a seven-year-high now, making the upside very attractive. Mutual fund investments should form a key part of your portfolio, especially if you do not have enough funds to diversify investments into bespoke equity.
2. Gold
Many consider gold an obsolete form of investment, but experts opine that gold as an investment should form about 10% of your portfolio. It not only helps with diversification but can also generate healthy returns over the long term. The yellow metal is expected to hit Rs 41,000 to Rs 41,500 per 10gm by Diwali 2020. Keep in mind that you no longer have to invest in physical gold, you can also invest through gold ETF and sovereign gold bonds.
Related: Factors that affect gold prices in India
3. ULIPs
Unit-linked insurance plans allow you to combine the benefits of an investment instrument with an insurance cover. Withdrawals from a ULIP are tax-free and do not attract any capital gains taxes. Further, ease in switching funds lets you alter your strategy based on the market dynamics and your own investment goals. Most insurers have dropped premium allocation charges, and are returning the mortality charges on maturity, making ULIPs an attractive investment option for 2020.
Related: 5 ways to assess your finances this New Year
4. Debt Mutual Funds
Total asset under management for mutual funds in India hit Rs 27 lakh crore in November 2019, recording a year-on-year growth of 15%. For the twelfth month straight, SIP inflows were over Rs 8000 crore. Growth in November was driven by inflows in debt funds. While debt funds have a risk exposure close to that of fixed deposits, they offer a much larger upside. This makes debt mutual funds a great way of parking your excess funds, both with a short-term or a mid-term horizon. SIP investment can be a great way of making a regular investment into mutual funds. Remember that the key to building wealth is making small but regular investments.
Related: FAQs about Mutual Funds
5. Public Provident Fund
The government has kept the interest rates on small savings schemes unchanged for the third quarter of this year. This makes PPF an attractive option for small investors who are seeing banks cut down interest rates following multiple rate cuts announced by the RBI. A tenure of 15 years ensures that your investment is compounded, resulting in higher yield. Further, after the requirements are met, you can also avail of a loan against your PPF.
Related: 8 Money tips for women in the New Year
6. Exchange-Traded Funds
ETFs are a type of pooled investment funds that passively track an index by holding securities in the same weight as the underlying index. This gives the investor a huge advantage in terms of cost-efficiency. The expense ratio for ETFs is typically under 0.5%, which is substantially lower than the 2–2.5% for actively managed funds. This saving can result in a substantially higher payout in the long run. Remember that markets tend to be efficient over time and no manager can be expected to outperform the market (Efficient Market Hypothesis). This makes ETFs a better choice if you have a long-term horizon to work with. As the equity markets are expected to perform well in the year ahead, an investment in ETF can generate good returns
Depending on your investment strategy, you can also consider investing in equity-linked saving schemes. Investments made in ELSS are tax-deductible under Section 80C of the Income Tax Act. These have a lock-in period of three years – the lowest among all the instruments available under Section 80C.
Related: 10 Tips to continue sticking to your New Year's resolutions
Further advice
Given that the long-term prospects of the Indian market are strong, you should consider direct investment into stocks as well. Unlike investing through funds, this would require you to analyse the fundamentals of a company before you make the right investment. It is best to start by investing in industries you are familiar with – this will increase the chances of picking a winner. Do not try to time the market; instead select stocks that can withstand downturns without going bust.
It is important to remember that get-rich-quick schemes are almost never worth the risk they carry. Always aim to balance your portfolio so that you can withstand any market shocks without losing your capital.
Disclaimer: This article is intended for general information purposes only and should not be construed as investment or tax or legal advice. You should separately obtain independent advice when making decisions in these areas.
