Ask our experts- April 2022

Do the returns obtained by the average retail investor justify the time and effort spent in active investing? — Aadithya Umesh

Yes, when investment is based on or supported by research outlook and recommendations, the returns are likely to be better than the market. It is also found to be more lucrative on a long-term basis and when followed with a structured investment plan like SIP, for an average retail investor. Whereas the outcome and returns are poor when based on random daily trading and nonprofessional trading.

  • In this year, with current market conditions, how should an investor who plans to invest Rs.10 to Rs.20 lakhs approach the market? The investment goal is wealth maximization with long term horizon. — Ashok H V

At this level, stock selection will be the key to outperform the market. Lumpsum investment is not suggested. It is better to stagger the investments through SIP mode. Sectors in which investments can be focused are Capital Goods, High Scale manufacturing, Green Energy, Pvt Banks, IT, Pharma and Consumption. India’s premium valuation has started to reduce. Example, Nifty50 index one year forward of 22.5x has reduced to 19.5x, marginally higher to 5 year average of 18.5 years. The ongoing consolidation can be used to capitalize as long-term outlook of the Indian equity market is progressive on the long-term basis.

  • I am a retired person and have Rs 1 core as my retirement benefits. How do I invest this amount in the most tax-efficient way possible?– Ramnath G

The data is insufficient to recommend appropriate allocation. However here we have mentioned some of the investment options that will help you earn good returns.

Senior Citizens’ Saving Scheme (SCSS): This scheme is available only for senior citizens or early retirees. SCSS can be availed from a post office or a bank by anyone above 60 years. Early retirees can invest in SCSS, provided they do so within three months of receiving their retirement funds. The upper investment limit is Rs 15 lakh.

Post Office Monthly Income Scheme (POMIS) Account: POMIS is a five-year investment with a maximum cap of Rs 9 lakh under joint ownership and Rs 4.5 lakh under single ownership.

Bank fixed deposits (FD) are another popular choice for retirees. This investment will provide safety and fixed returns. However, the interest rate over the last couple of years has been falling.

Mutual funds (MFs): Depending on the risk profile, retirees may also allocate some percentage into equity MFs as well as Debt MFs. Large-cap, balanced funds, conservative hybrid funds are some of the categories that can be included in the portfolio.

Bonds: High rated bonds also are another option for investment. Tax free bonds are a better option.

Annuities Plans: Immediate or deferred annuity scheme of life insurance companies are the option for retirees. The pension or the annuity is currently around 5-6 percent per annum, and it is entirely taxable.

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