Year-end portfolio review, Vatsalya scheme: Top personal finance stories

This week report about how to check and balance your financial investments and how a government scheme for children's retirement scheme works

With equities experiencing a strong run-up this year, many investors may find their portfolios overweight in this asset class. To mitigate risk, it is essential to rebalance and align allocations to original levels. In this week’s lead story, Sanjay Kumar Singh and Karthik Jerome provide a roadmap to help do-it-yourself investors conduct an effective year-end portfolio review.

 

The government’s National Pension System (NPS) Vatsalya scheme allows parents to save for their children’s retirement from an early age. However, with competing financial priorities like education, marriage, and business ventures, how practical is this product? Securities and Exchange Board of India (Sebi) registered investment advisor Deepesh Raghaw evaluates its relevance.

 

If you are in the old tax regime and have yet to begin tax-saving investments, begin right away. Regular investments over the next four months in equity-linked savings schemes (ELSS) can help average out purchase costs, a better option than making lump-sum investments at elevated valuations. If you are looking for a fund in the ELSS category, go through Morningstar’s review of Nippon India ELSS Tax Saver.

 

Fixed deposit (FD) rates are currently at their peak, but rate cuts by the Reserve Bank of India (RBI) starting in February could drive rates lower. If you wish to lock in current rates, check Paisabazaar.com’s table for an overview of the rates being offered by various banks.

 

NUMBER OF THE WEEK

 

40%: Share of direct plans in total SIP accounts

 

Online investing has changed mutual fund distribution drastically. The majority of newer investors are entering through direct investment channels, as evidenced by the increase in share of direct plans in systematic investment plan (SIP) accounts from about 21 per cent in October 2020 to nearly 40 per cent in October 2024.

 

Commissions for services are included in regular plans that are distributed by middlemen such as banks and agents. Direct plans, on the other hand, are commission-free and are designed for investors who feel comfortable handling the investment process on their own.

 

Direct plans made up 38.7 per cent of the 101 million SIP accounts as of the end of October 2024; in October 2020, they made up 21.5 per cent of the 33.7 million SIP accounts.

 

According to industry data, the assets under management (AUM) associated with direct plan SIPs increased from Rs 3.4 trillion in October 2020 to Rs 13.3 trillion in October 2024. However, the proportion of SIP AUM only increased from 12.9 per cent to 20.3 per cent over this period.

 

Experts say there are two main reasons for this discrepancy: regular plan SIPs have longer durations and larger average ticket sizes.

 

By investing in direct plans, investors can save on expense ratio. This can augment their long-term returns from funds. However, the direct plan route is beneficial only for investors who can select the right funds and build the right portfolio themselves. The benefits of these plans will also accrue over the long term only if investors stay put in these funds for a longer period, instead of indulging in high churn.