10 things to do in the new financial year
If taken in April, these measures
will ensure that the rest of the year turns out to be a fruitful one for you.
The beginning of a new financial
year is a good time to review and assess your investments.
It's a time to reevaluate your
insurance needs and kick off your tax planning. We bring you 10 essential steps
that you as an investor should take right now to ensure smooth sailing for the
rest of the year.
1 REBALANCE THE PORTFOLIO
The most important step is
rebalancing of the portfolio. You may have started the year with a 60%
allocation to equities, 30% to debt and 10% to gold. But equities shot up
30-40% in 2014-15, while debt went up by 9% and gold fell by 5%. So your
portfolio is now 65% in equities, 26% in debt and 9.5% in gold. To return to
the allocation preferred by you, sell some of your equity investments and
invest the proceeds in debt and gold. It may seem counter-intuitive to sell
stocks at a time when there is so much bullishness in the air. However,
historically it has been proved that investors who periodically rebalance their
portfolios get the best re turns. “If you consistently sell an outperforming
asset and buy an underperforming one, it will mean that you will always buy low
and sell high, which will translate into good portfolio performance,“ says
Jatin Khemani, MD of Delhi-based Stalwart Investment Advisors. Before selling
an asset, take into account whether it will attract tax liability.
2 REVIEW PROGRESS OF GOALS
While rebalancing your portfolio,
review your financial goals. If some investments have not done as well as
estimated, there would be a shortfall in the target amount set for that goal.
You need to make additional investments to cover that gap. In some cases, the
target itself may have moved up. For instance, if the surge in the dollar has
pushed up the cost of your child's foreign education, you need to increase your
investment for that goal. Check out how your investments for different goals
have progressed and whether you need to make additional investments.
Bangalore-based Puneet Arora , country manager at an MNC, gets his financial plan reviewed every
year.During the review, his financial planner sets targets for how much money
will be invested and what returns his corpus must earn that year. If additional
funds have become available due to an increase in salary, his financial planner
suggests where the money should be invested. He also checks whether last year's
targets were met.
3 JUNK LAGGARD FUNDS, OVERVALUED STOCKS
While reviewing your investments,
you must weed out underperformers from your portfolio. Says Vidya Bala, Head of
Research at Fundsindia.com: “If a fund has been underperforming for the last
2-3 quarters, stop your SIP in it and put it on watch. If the underperformance
continues for 5-6 quarters, get rid of the fund.“ If the fund has had a stellar
track record, give it a longer time before deciding to axe it from your
portfolio.
Even stocks that have run up quite a
bit in recent months and are now trading at very high valuations may be sold
(see table). Selling such high-value stocks will reduce the risk in the
portfolio.
4 TAKE STOCK OF LIFE INSURANCE NEEDS
Your life insurance needs keep
changing. A spouse quitting her job or the birth of a child would increase your
responsibilities and require you to buy more life cover. A `50 lakh cover was
considered adequate 10 years ago, but given the inflation since, that sum won't
be enough to sustain your family's needs today. You may have also taken a
big-ticket loan in the meantime. Remember, the cover should be big enough to
provide a monthly income to your family, settle all outstanding loans, and
provide enough for future expenses like education and marriage of children.
Assess your insurance needs and buy additional cover if required.
5 REVIEW HEALTH INSURANCE POLICY
Like life insurance, you should also
reassess your health insurance needs.Given the high cost of healthcare and the
exclusion clauses in most policies, a cover of `3 lakh is no longer enough. Buy
a cover of at least `5 lakh for your family.
Many circumstances call for you to
enhance your health cover. The most important reason, of course, is to keep
pace with galloping inflation. But there can be other factors. Says Ankur
Kapur, DirectorInvestment advisory, Finqa.in: “You may need to augment your
health cover if you were earlier in a job, where you had the benefit of an
employer-provided cover, and are now starting your own business.“
Other circumstances in which you need
to buy more cover could be that your employer has reduced the amount of cover
offered to employees to cut costs, or you may have shifted from a small town to
a metro, where healthcare costs are higher.
Also, assess whether there are
better products in the market. If your policy is not good enough, switch to a
new insurer.
6 START YOUR TAX PLANNING
Most people crunch their tax
planning into the last two months of the financial year. Instead of waiting
till March, start investing in tax saving options from this month itself. This
is especially important if you want to invest in ELSS funds. Starting in April
will allow you to diversify the risk across time instead of putting in a lump
sum at the end of the year. Your PPF investments made at the start of the year
will start earning interest right then.
You also tend to make a lot of
mistakes if you leave financial planning for the end of the year. “If you are
buying in a rush, you may invest at the last moment in a life insurance policy
that doesn't require medical check-up. But such policies usually come with a
low sum assured,“ says Vishal Dhawan, Chief Financial Planner, Plan Ahead
Wealth Advisors. On the other hand, if you buy at the start of the year, you
are more likely to consider your insurance needs carefully and make the
appropriate purchase.
7 OPEN NPS AND SUKANYA ACCOUNTS IF ELIGIBLE
The additional `50,000 deduction for
investments in the National Pension System (NPS) under Sec 80CCD (1B) is a good
opportunity to reduce your tax burden. Open an NPS account to benefit from
this. If you have a daughter below 11 years, open a Sukanya Samriddhi Yojana
account for her. At 9.2%, it offers higher returns than the PPF. Richa Angik
(see picture), a Jamshedpur-based dental surgeon, has already invested in this
product to take advantage of this opportunity.
8 SUBMIT FORM 15G OR 15H IF ELIGIBLE
The government has changed TDS rules
and even interest income from recurring deposits will now be subject to tax
deduction at source. If you are not in the taxable bracket, submit form 15G or
15H to avoid TDS on your investments. However, make sure you are eligible to
submit these forms. Incorrect declarations amount to tax evasion and can invite
stiff penalties from the tax department.
9 CHECK YOUR FORM 26 AS AND TALLY TDS CREDIT
The tax filing season is about to
begin. While the tax deducted by your employer will get reflected in Form 16,
check out your Form 26AS online to make sure that all other taxes (advance tax,
TDS on investments and other direct taxes) have been rightfully credited to
your PAN. If there is a discrepancy, notify the deductor immediately and get it
rectified before the tax filing season starts. Here is how you view your Form
26AS: Go to the official website of the income tax department. Click on the
Form 26AS link and register.
Log in with your PAN, date of birth
and password. You will be redirected to the TDS-CPC website.
Choose the relevant assessment year
to view your tax credit.
Netbanking customers can access
their Form 26AS through the bank website.
10 OPEN AN ACCOUNT WITH MF UTILITY
Direct mutual funds give higher
returns because they charge less. But one has to invest directly with the
mutual fund. If you are investing in 3-4 fund houses, this can be challenging.
One has to keep a record of different login IDs and passwords. The MF utility
platform could do away with this problem by providing a common investing
platform for 25 fund houses. The platform is already operational for brokers
and distributors and is likely to be opened to investors by June.
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SANJAY KUMAR SINGH
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ETW13APR15
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