November 19, 2019
“Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it” – Warren Buffett
By now you must have settled down analyzing the budget and finding out what it had in store for you. We were expecting budget to be a tone setting budget for a $ 5 trillion economy. And it turned out to be a vision document if not exactly the tone setting budget. We won’t discuss more of what budget had and what it didn’t. More or less it had been along the expected lines per our communication dated 4th July. Should you have any specific query on this budget, please do write to us and we would answer your query.
On budget day stock markets reacted negatively and continued its negative trend even today, also owing to many other global and domestic factors. Opposite to this bond markets welcomed the budget with yield on 10 year G Sec, at one point declining to 6.56 from 6.74 before it settled at 6.69 on that day.
*What should investor do*– In our communication dated 2nd April, we have advised our investors to be cautious as we felt markets were expensive and the rally in Nifty or Sensex was not a broad based rally. With markets that have declined by over 4% from its recent peak are now much better poised for taking a plunge. Markets may further correct and Nifty may breach 11,200 or go down to around 10,800. But at present levels one must start becoming greedy and start taking small exposure from his/her surplus funds. If Nifty reaches 11,000, I would like to put my 80% corpus into equities. Remember *Never run out of liquidity.*
In current budget, government has focused a lot on bonds and debt markets. As an investor one must have good bonds in his portfolio. There are good AAA rated PSU bonds available at around 8.6%. Some state run PSU bonds are even available at over 10% yield apart from many corporate bonds available at very attractive yields. *CAUTION* – Go for only secured bonds of companies with good sustainable business model. Alternatively you can also invest into fixed deposits of such companies.
Industry always finds ways to exploit the provisions of government rules. To exploit the capital gains tax levied in last budget some insurance companies have offered ULIPs with nil premium allocation charges and thus operating at expense ratio that of mutual funds. They offer choice of multiple funds across largecap, multicap, midcap, bonds or liquid and they offer facilities for unlimited switches into these funds without incurring any charges and capital gains tax. Also maturity or withdrawal is completely tax free unlike mutual funds or direct equity where even long term capital gain is taxed over Rs one lakh.
Apart from this, some insurance companies have come with some guaranteed income plans offering guaranteed income, for as long as upto 99 years of your age. And surprisingly yields are also very good upto 7% tax free for a period upto 39 years. We have started advising such plans to our clients who are in higher tax bracket as an alternate to pension plan as proceeds from pension plans are taxable and come with covenants.
And there are many more products, using which we devise investment solutions for our clients depending upon their specific requirements – be it short term or long term and for any purpose.
Please do contact us for any query you have on budget or any investment product or need an investment solution for your requirements.