2019 will be a very interesting year for SIP investments in India. There will be some developments in the political and economic environment that will impact your SIP investments. However, you can make the best of these changes by following these smart moves.
1. Volatility during elections- This being an election year, there will be a lot of market instability during April- May. The ruling party may or may not come back to power. Investors have high hopes of the NDA winning the elections and continuing the growth-related policies.
Many investors will most likely go slow or stop their investments. This is not the right approach.
Seasoned finance professionals say that now is the time to maintain the investment tempo and take advantage of the reduced rupee costs. What this means is that if you have invested in a SIP plan during the last 12-18 months, then you must stay invested. If you stop right now and the rupee value increases in the future, you are likely to miss the advantages of value appreciation.
2. Have a relook at large caps- In 2018, many large caps missed out on meeting their benchmark indices. This year too, large caps aren’t going to deliver any better. It would be prudent to invest in mid-caps in 2019. There is a caveat though; invest in mid-caps only if you have an appetite for risk in a volatile environment.
3. Leverage capital gains tax on mutual funds- Last year, there was some turbulence in the stock market because of the 10% capital gains tax on equity based mutual funds. Initially there was some panic selling by the investors but all that is history now.
Market watchers say that investors began pumping money back into the markets after realizing that the 10 % tax is not bad at all. There was an increase in the monthly SIP inflows by at least 20 % in 2018. Indeed, the small investor realized that for all investments less than 1 lac in a year, the 10% tax doesn’t matter much.
Lesson for the small investors- if you are putting in 5,000-10,000 rupees a month then continue doing so. However, they are cautioned to start harvesting their returns to avoid paying capital gains tax.
Big time investors (30,000-50,000 per month) should book their profits as soon as possible because after 2 years, their yields would fall in the capital gains ambit.
4. Save more to spend more in SIPs- This year from April 1, all the banks are supposed to align their home loan interest rates with the RBI repo rate or any other market benchmark rate.
What this means to the individual investor is that his home loan pay-outs can decrease overtime. The RBI has mandated that all the banks have to be transparent about how they set their interest rates. So, if you have taken a loan from a bank for your home then you can negotiate with it for a better deal. If you don’t get it, then you can very well switch over to another bank. The amount thus saved can be invested in a SIP.
5. Opting for short term debt funds- Interest rate movements have become unpredictable and this volatility has caused heavy losses to several investors.
Experts suggest that it is wiser to invest in those debt funds that have shorter shelf lives. This does not mean that long term products don’t deliver value at all. The limited point is that short term debt products (2-3 years) have trumped the long term ones. If you don’t have an appetite for risk then go in for these short term products.
6. Focus on US-based funds- Market gurus say that it is a good idea to invest in funds that have a US exposure. These funds invest in companies that have robust cash flows, have a good brand equity and are diverse. If you are planning to spend on your child’s education in the United States, then go in for this type of funds.
Conclusion- While 2018 wasn’t a great year for investors, this year promises to deliver them good returns. Brace yourself for some market volatility but stay invested. You can check out the best SIP investment plans offered by OroWealth and invest your funds wisely for maximum returns.