 "personal finance, financial planning")
January is the time to take a fresh look at our finances, debts and investments. Here are some financial moves you should consider making in 2024.
Equities
When it comes to investing in equity, it's important to choose your categories wisely. Do not get carried away by markets being on fire. Don't have more than 5 per cent allocation to a pure large-cap fund. "This category has the least alpha generation potential at 37 per cent with an average alpha against Nifty 50 of 3.02. In the year 2023, 84 per cent of the large-cap funds will have beaten Nifty 50, which is less when compared to the other diversified categories," says Feroze Azeez, deputy chief executive officer (CEO), Anand Rathi Wealth Limited.
Your next move should be to rebalance your market capital allocation: It should be an annual exercise. The valuations for large cap are fair with a 1 per cent froth level. The small cap is still quite attractive with a negative froth level of 12 per cent. Azeez says, "The growth potential of large-cap, mid-cap, and small-cap is approximately around 17 per cent, 30 per cent and 14. per cent. Currently, you should maintain 50 to 55 per cent in large cap and the remaining 45-50 per cent in mid-cap and small-cap (where small cap allocation can be up to 25 per cent)."
Don't have a growth versus value investing approach. Choose a balanced approach to growth and value investing. "In the last four years, the performance of the two different styles has been inversely related in the last three years, except for 2021 and 2023," he says.
Debt
Since March 2020, the Indian equity markets have witnessed a boom. As a result, many retail investors are under-exposed to debt investments. However, it may be a good time to relook at your portfolio from an asset allocation standpoint and refill your debt bucket if needed.
"The key monetary policy rates are likely to start reducing in the second half of this year. Once the rate cuts start, all the banks and NBFCs will follow suit," says Ajinkya Kulkarni, co-founder and CEO, Wint Wealth.
As a result, interest rates on fixed deposits of various banks, small finance banks, and NBFCs will start reducing. Kulkarni says, "Thus, the best time to park your money into high-return fixed deposits (FDs) is now. Small finance banks offer approximately 1-2 per cent extra interest per annum compared to most established banks, along with deposit insurance of Rs 5 lakh per account per accountholder from Deposit Insurance and Credit Guarantee Corporation. Retail investors should avoid floating-rate FDs as the interest rates are expected to decrease soon."
Note that market regulator Securities and Exchange Board of India (Sebi) has rolled out a consultation paper to reduce the ticket size of listed debt securities under private placement from Rs 1 lakh to Rs 10,000. Kulkarni says, "Based on the market response, we hope the regulator will reduce the ticket size sometime this year." Retail investors need a minimum of Rs 5-6 lakh to create a meaningful diversified corporate bond portfolio. Kulkarni says, "With the reduced ticket size, many retail investors can access corporate bonds by starting with a small amount and gradually creating a diversified portfolio." So keep watching, and when the ticket size reduces, take the plunge based on your specific financial needs or goals.
Insurance
The life insurance sector is rapidly evolving as per customer needs. "This is visible with the development of products like women’s term insurance, which is an industry first in the term category. For instance, policies that provide coverage with independent homemaker plans and are cost-effective for women," says Sarbvir Singh, joint group CEO at PB Fintech.
For a homemaker, getting such a cover is an important financial move to make in 2024. Earlier, homemakers had to depend on their spouse’s term policy. It is now possible for them to independently provide for the future of their dependents without relying on their spouse's term policy. Homemakers with a household income of Rs 3 lakh and a 10th or 12th pass education qualification are eligible for coverage ranging from Rs 50 lakh to 1 crore.
About health insurance, Singh says: "Cashless Anywhere is an exemplary initiative that will enable seamless claim settlement and ease customers’ pain points on a large scale. Health insurance policyholders can avail of cashless services at any hospital, even those not in the network of the insurer. It depends on the hospital's acceptance of the cashless facility. Before admission, policyholders must provide basic information about the patient, including policy details, diagnosis, hospital name, doctor, etc.
Tax
No financial move will be complete without vetting it against taxes. The Nifty 50 has yielded a commendable 21 per cent return in the past 12 months. "Investors who are contemplating profit booking should convert their short-term capital gains to long-term," says Naveen Wadhwa, deputy general manager at Taxmann.
Distinguishing between long-term and short-term gains is pivotal due to different tax rates. Long-term gains from equity shares held for over 12 months are taxed at 10 per cent if they exceed Rs 1 lakh, while short-term gains incur a 15 per cent tax without any threshold. Wadhwa says, "Check the date of purchase before selling shares, as long-term capital gains will help you reduce the tax burden and will also qualify you for exemption under Section 54F, provided the consideration is invested in purchasing or constructing a house property."
Review your financial goals regularly and modify your strategies as needed. You need to be flexible and proactive in managing your finances.
