From all opinions voiced by different analysts and also the intuitive observations one can make, it appears quite clear that the personal finance space will be one of great changes this year. How do you plan for your personal finances in this year? Let me try to address it in this post.
Insurance is the one area where not much attention is paid by many of us. In this year focus on the following:-
- Term insurance is a must if you are earning actively. Ensure that your active income is protected through insurance if you unfortunately pass away.
- You must also have Disability insurance and critical illness insurance covers. It is better to get separate covers and not tag them along with the term plan.
- If your health insurance is not adequate or has sub limits on room expenses etc, consider porting your plan to a different insurer. Do not look at closing a plan and starting another plan as that will start the clock on existing diseases from the start again. Porting policies is relatively easy nowadays.
- Do not mix insurance and investment – steer clear of ULIP and Child plans, even though some of the newer plans are much improved now.
In terms of Equity investments, this is a year where people willing and able to take risks will do well. The initial part of the year is a good time to invest with returns coming in the latter part. Focus on the following:-
- Though taking some risks is the theme this year, avoid sector funds.
- Mid and small cap funds could again be the flavor of the year. You can invest in funds like DSP Micro Cap fund or FT Smaller companies fund.
- Ensure that your portfolio has large cap stability inbuilt in it. The large cap returns were rather muted in 2016 and there are good chances of these doing a lot better in 2017. Look at ICICI Blue chip, ICICI Top 100 and BSL Frontline Equity to name a few.
- It will make a lot of sense to buy MF based on index levels as opposed to doing a standard SIP. Read some of my blog posts if you are interested.
As far as Debt universe is concerned, keep the following in mind:-
- There may be 1-2 more rate cuts, so you can still look at investment in Bond funds. Look at short-term funds with duration of 1-3 years.
- Most of the other types of pure debt funds will do badly, so there will be little point in looking at these for investment purposes.
- If you need to invest in Debt look at funds such as Dual advantage FMP, MIP etc which have some equity component. Arbitrage funds, though not in Debt category, can also be a possible option.
- Even though Small savings schemes are now market linked, the government will find it tough to follow through on these scrupulously. I do not see PPF going below 7.5 % and SSY below 8 %. As long as you are investing in them for the long-term continue to do so.
What about Real estate then? If you are looking at buying a home for yourself, this is a great time with the home loan rates quite low. However, do not look at RE as an investment as there will be a lot of upheaval in this sector quite soon.
Finally, what should you do with Gold? I feel Gold funds will be a better choice than the Gold bonds, given that the latter will also benefit from the returns of the Gold mining companies. Make sure you do not invest more than 10 % on this.
Here’s wishing all the readers a very productive investment year. It will be a year of great challenges, make sure you stay on course.