While one of the factors that motivates new investors is tax saving, investing to fulfill life goals would require investments beyond the fixed-income tax-saving instruments.
For youngsters, who have just started their earnings, investments generally take a backseat as they prefer to spend more on enjoyment. For those who want to start investing, where to invest is always a dilemma.
While one of the factors that motivates new investors is tax saving, investing to fulfill life goals would require investments beyond the fixed-income tax-saving instruments.
Equity
As new investors have a long working life to invest, equity is an ideal option for them to generate higher returns in the long term. Moreover, post-lockdown the revival of economic activities has resulted in a market rally that pushed the Sensex above 50,000 level.
New investors should consider being overweight on equities as an asset class. Currently, we are in an economic recovery and earnings upgrade cycle, which is finding strong policy support and in such an environment, equities tend to outperform other asset classes. We would suggest 60 per cent allocation to Large-cap and 40 per cent to Small- and Mid-cap. We believe there are still some value plays to be found in the Small- and Mid-cap space even though the market has rallied.
Debt
Apart from equity, it is also essential to allocate some assets in debt to take advantage of market fluctuations and maximise return in the long term.
If a new investor wants to invest in debt we would recommend taking exposure in MFs and papers in 5-7 years maturity segment or invest in AA or A (strong balance sheet) papers up to 35 per cent of the portfolio. Avoid short term papers from a medium-term investment perspective.
Portfolio rebalancing
After allocating assets in debt and equity in a fixed proportion, it is also necessary to review the portfolio periodically and rebalance the portfolio to restore the debt-equity ratio once it gets skewed.