• Why are my returns low?

• Should I continue investing in current markets?

• What should I do to get higher returns?

These are some of the most common questions that we hear on the streets whenever the markets take a dip. Many investors who are new to the game are not really sure what is happening to the markets and to their investments. Are you having these questions? Have you been asked these questions? If yes, please read on...

What do I need to know?

Take a pause, clear your mind and go back to understanding the nature of the markets and the basic tenants of investing.

1. It is the nature of equities: So what makes equity exciting and rewarding as compared to a bank FD? It's because it is volatile in the short run with the potential to deliver superior returns in the long run. That is the basic nature of equities. It carries a risk which is not there in guaranteed investments. If you thought that equities deliver returns in a straight line, you are sadly mistaken. If you are investing in equities, you have to be mentally and financially prepared to take hits on your portfolio and digest even negative returns in short to medium term. If you cannot, I am sorry that you made a mistake of investing in equities. Please go back to guaranteed investments.

2. Why volatility is your friend: So it is clear that volatility is inherent in the markets due to many reasons. And it is because of this volatility that investors get opportunities to enter the markets, build on your portfolio and make strategic investment decisions (we will talk about it later). Without volatility, all the stocks will be fully valued to their (earnings) growth expectations at all times. In such a hypothetic and predictable market, everyone will invest in stocks and the advantage of equities over debt investments will no longer exist. It is only volatility that gives opportunities to investors and fund managers (mutual funds!!) to identify opportunities in the market to deliver 'alpha returns'. Alpha returns are the extra returns generated due to fund management expertise over and above market /benchmark returns.

3. Market timing is futile: Many studies have shown that equity market returns over the long term are fairly insulated from the short-term market volatility. In other words, your returns over say 10-15 years do not matter much whether you invest at Sensex 37,000 or 39,000. What would matter most is how long have you stayed investments. This is a fact and you can very well put your excel skills to good use finding out the extra returns you will get. In the end, the extra returns from market timing fall awfully short of the efforts, mental pressure and repeated transaction costs it carries. And this is only assuming that you are an excellent fortune teller who can predict how the markets will move. If you believe you can do that consistently over several years, you would be the first person in the world to do so and should be awarded a noble prize. No joking.

4. Asset Allocation strategy helps: So what should we do? Always remember that in investments, as in life too, often the simplest answer is the right answer. It is always the right time to go back to the basic tenant of investing – asset allocation. Yes. It is the time when you should do a proper relook at your asset allocation. It may be possible that your equity portion has reduced in size against your target. So realignment by moving some surplus funds from debt assets to equity to get back to the targeted asset allocation is what you can do. No rocket science here.

5. Investing in bear markets helps: Didn't we earlier say that falling markets provide an opportunity for investors to enter markets or invest more? Well, if you are a SIP investor, the news gets even better. All your SIP instalments being made in bear markets are surely getting you the much-desired boost to your portfolio. So do NOT stop your SIPs just because they may be delivering lower returns for now. Have patience and you will be suitably rewarded. Warren Buffet, the great investor once said that he will have absolutely no problems if the markets closed down for the next 10 years since his investment horizon is beyond 10 years. Take some time to ponder on this great idea.

6. Think discounts: Are you not excited every time Amazon or Flipkart offers great discounts? Don't you often end up buying new things which you do not even need just to benefit from these discounts? So why then do you think differently when it comes to dips in the market? Why can't you see that these are like discounts offered in the equity markets from time to time? Care to invest more now?

7. Losses are notional unless you make them real: Lets' get a bit philosophical here. No one can hurt you unless you allow them to hurt you. It's all how you think and feel from within that dictates your level of happiness and peace in life. The same philosophy holds very true for your investments as well. Your losses are notional and temporary. If you give them adequate time, they will recover and deliver decent returns over time. The market history tells us that the possibility of you generating negative returns from equity markets over say 10 years and above is almost nil, irrespective of all ups and downs during the journey. So just chill. Unless of course, you want to kick the axe yourself and enjoy losses by selling in panic.

Let us again reiterate some facts. Equities are risky in the short-term. They hold the promise of good real returns (above inflation and post-tax), more than any asset class in long-run. Short term volatility offers opportunities and is not necessarily bad. Stick to the basic idea of discipline, asset allocation, regular investing and time in the markets to enjoy better returns in the long run. Do not stop SIPs rather see if you can increase them. In case you still need help, just call your advisor for more gyan and assurance on the subject.

1. When Buying Insurance, focus on sum assured
Don't fall for policies giving you 10 times insurance cover. They are all expensive investment products in the garb of insurance. Check the Sum Assured Amount whenever you buy a policy. Prefer a term plan in Insurance. The approx cost of 1 Cr term plan for 30 year old is approx Rs. 7000 only.

2. Increase your sum assured
Increase your insurance coverage. Ideally your insurance amount should be Equal to 10 times of your annual income. Calculate your total sum assured from all your current policies and buy the difference amount before your birthday this year (it will save you some cost). Buy a term plan.

3. Pay a fee to get good advice, be it for taxes, insurance or investments
Nothing comes for free in the world. A good advisor knows his job and financial products better than you. Pay fee to get good advice, though it might pinch you now, but it will be definitely much cheaper in the long run. When you pay a fee for a good doctor, a good interior designer or a good lawyer simply to get best service and right advice, apply the same logic to your financial transactions too.

4. Mediclaim – increase your cover by 10% every year
Many of us are still stuck with old health insurance policies where we haven't increased the cover for many years. Go for minimum health insurance coverage of Rs. 10 Lac, ensure all your family members are covered (cost is going to be highest for your old parents, but that's where the chances of claims are also high). Think of your premium as 10 year investment. Even if you have to go through one big medical emergency in next 10 years, god forbid, it will still be worth it.

5. Check your nomination in investments and insurance
Do you know, post your death what will happen to your bank accounts, investments, who will get the insurance amount ?? If you have not filled up a simple nomination form, your family will be running from pillar to post to get the paper work completed just to prove that they are your legal heirs. To avoid all the hassles, just ensure that all your bank accounts, investments, bank deposits, insurance etc have proper nomination done.

6. Pay Credit Card bills on time
Never delay your Credit Card Payments. Never withdraw cash from your credit cards. You are charged upto 3.5% interest per month on it, which 42% annual rate of interest. If you are short of money or need funds for short term, better to go for Loan Against Securities (against your MF/Shares) which is available at 11-12% interest or go for personal loan at 14-15%.

7. Restart your SIP closed last year
If you had closed your SIP last year fearing market volatility or by looking into negative returns, time to restart it again. If possible, try to invest the amount of missed instalments together. Market down turns are the best times for SIP's to accumulate units. Do your SIP for 10-15 years, invest in it and forget it.

8. Increase your SIP
With your next salary hike, increase your SIP amount. Larger the SIP investments now, higher will be the wealth created in future. Higher SIP amount brings you closer to your goals. Make it a habit of increasing SIP amount every year.

9. Don't check your MF portfolio daily
If you have invested for long term, there is no point in checking your portfolio daily. All the gains/losses which you see daily are on paper. They will turn real only when you exit your investments. If your time horizon is for 5-10-15 years, what's the value of your portfolio in 2020 or in 2021 really doesn't matter.

10. Write down all your investment details at one place. Share with your spouse.
You might have different investments done though different advisors, or some insurance policies bought through banks, some tax saving investments made many years back or 5 different bank accounts. Write it all down at one place with bank a/c number, policy number, folio number, investment amount and all other relevant details. Put name of contact person for each investment. Just think of a scenario, that if something happens to you, ypur family won't even be aware how much money they are going to get.

11. Make your will
Just take a plain paper. Write down details of all your assets and liabilities and share a copy of that with your spouse or any other trusted family member/friend. WILL is not something which we make only when we grow old. Remember, all of us know our birth date, but none knows their death date. A WILL will ensure your assets are distributed to your family members in the way you wish with minimum fuss during legal procedures.

12. Stop worrying about your MF returns
Your Mutual Funds are giving low returns?? you are worried, want to switch your investments ?? A simple way to get over this is stop worrying. Let the investments be. Equity Mutual Funds, deliver superior returns over long term periods of 10-15 years. Just stay invested and keep patience. Chopping and churning will only dilute your returns and you might lose the opportunity when markets jump back.

13. Make your Financial Plan
Sit with your advisor. Make your Financial Plan. Will give you clarity, what amount is needed by you when in the future and how can you invest in the right way to reach it. Make your plan and stick to it. Consult the advisor once/twice a year to update the status of the plan.

14. No need to own more than 1 residential property
Investing in property is a big NO. Buy 1 for yourself where you will be living. For additional money, invest in Financial Products like Mutual Funds, they give you more transparency of valuation, with high liquidity your money is available to you in 3 days (whatever be the amount, whatever). Even if you need regular income, you can get it through the SWP option. No need of lengthy paperwork of real estate, taking care of maintenance expense of the property, searching for a good quality lessee etc. And its highly tax efficient too!

15. Complete your tax related investments/insurance in Jan
Don't wait for last week of March for completing your tax investments. Do it in Jan for this year and for next year try to complete by June 2020 rather than waiting till end of the year.

16. 0 Cost EMI
Deal with it carefully. Buy only the products which you need at 0 cost EMI. If you can afford to buy by paying full amount always better to get benefit of 0 cost EMI. If not, don't fall into the trap of 0 cost EMI. Ultimately you have to pay it off and you may end up with not much needed expensive products, just because it was available at 0 cost EMI.

17. Open bank account for your kids and pay them pocket money in that
Teach your kids about finances. What better way than having their own bank account, their own ATM card. Give them freedom to use money (to the extent of their pocket money). Wise lessons are learnt only by practising.

18. Go Cashless
Use less cash this year. With wallets and UPI BHIM QR codes being accepted all across you can easily afford to go cashless. Saves you from lot of hassles of cash handling and visits to ATM. Also its absolutely safe, secure and easy.

19. Pay off your loans
Make it your first priority to pay off your outstanding loans. If you are having both loans and investments together, it's always better to pay off the loans and feel the relief rather than leveraging yourself.

20. No share trading
Stay away from share trading. Remember that the person who makes most money in share trading is the broker. If you want fun and excitement in life go visit a casino or a theme park like Imagica or Universal or Disneyland. Money making is not so easy as it looks like in share trading. If it was so rewarding, share traders would be world's richest people.

Being successful at your investments is not a numbers game. It is a mind game. Successful investing is a play of some basic things which can be practised and followed by anyone. Today, we bring these basic principles together in the form of 7 commandments of investments for our readers.

• 1. Asset Allocation is the key:

Studies have shown that asset allocation is the primary factor, the biggest determinant of how much returns your portfolio will generate. This is very simple to understand. For eg., if your equity portfolio is just, say 10% of your entire portfolio, inclusive of real estate, gold, bank deposits, insurance policies, etc., then it would not matter how well your equity portfolio performs. Having the right asset allocation is most important in the wealth creation journey over the long-term. And it begins by your understanding and having a proper look over your entire portfolio, not just that part which you can track daily.

• 2. Investing is simple but not easy:

Many investors often believe that to succeed and make money in the market, one has to be an expert, have inside information, try to best time the markets, predict what is going to happen tomorrow and so on. However, the most important fact to realise is that investing is very simple and based on some principles which do not need an expert to follow. Things like - being patient, starting early, saving regularly, following a right asset allocation, not making too many investment mistakes and staying invested for long or doing nothing are perhaps the most important factors for the success of your investment. Although these things are simple and easy to follow, in reality, they are not easy to follow at all.

• 3. Investing without goals is meaningless:

Often we invest without any goal or target. Most of our investment is also lying around without any purpose or target or any objective. On the other side, most of our traditional investments are kept aside for say retirement or marriage of daughter without ever planning or knowing the exact requirement for fulfilling those goals. Thus, most of us do not have goals and even if the goals are there in mind, they are rarely properly planned. Proper planning requires very little time or even expertise, however, it can prove to be very critical. Proper goal planning will ensure that your goals are never compromised and you fulfil them. Goal setting can be event specific and even general like wealth creation of say XX amount at YY date in future. Without goals, there is no direction and investments will be at the mercy of many different and less important things.

• 4. Investor behaviour is the reason for underperformance:

Many studies have shown the markets to deliver good returns but the investors are found to be under-performers by a great margin. The average market returns are always higher than the average investor returns. The gap between the two returns is attributed largely to investor behaviour. Investor behaviour, as per many studies, is found to be illogical and often based on emotion which is not good/wise for long-term investing decisions. An average investor typically buys when the markets are high, over-reacts to situations or short-term market events and sells when the markets are low. We are instantly reminded of the famous cycle of fear, greed and hope which follows every time.

• 5. A good financial advisor can contribution great value:

There is no doubt that a good advisor/ expert can deliver great value to your portfolio. An advisor's primary role is to manage investor's behaviour or emotions apart from everything else he does. An advisor will make sure that you do not sell or buy at the wrong time. This in itself has the potential to add great value to your portfolio. Further, an advisor is likely to suggest you the right, optimum asset allocation as per your needs, something most of us do not follow. Apart from these things, an advisor normally helps us to make our financial plan, save towards our goals, push us to save more, take proper insurance coverage, help ongoing management of the portfolio, operational support, and so on.

• 6. Equity is the best asset class in the long term:

From the past equity market experience, this is evident. Long term investment in equities will likely exceed returns from every other asset class. BSE Sensex returns since inception (1st April 2979) till today is nearly 15.8%. Just staying invested in the index would have multiplied your wealth by over 370 times in the past 40 years. However, there have been also many times that in one year the returns have been in negative 50-60%. The instances of negative returns steadily decrease as the duration increases and perhaps over say 10-15 years, the negative return instances (for investment at any point of time) is very rare to see.

• 7. Mutual funds are the ideal vehicle for investment:

One does expect you to perform like Warren Buffet who had the skills and the patience to identify and hold on to good businesses to become wealthy. Most of us do not have adequate time, resources, skills and information to go and find the winners. That is a full-time task of investment professionals. The next best thing for every one of us is to make use of the fund management team of mutual funds. Mutual funds, in essence, are vehicles for investment and the underlying can be any asset class or products. Mutual funds offer investors the widest choice of investment and many other advantages over traditional investments, including tax benefits and operational convenience and much greater transparency.

The last budget presented by the government was widely welcomed by everyone. There were many key measures taken for the benefit of taxpayers. Now that the new financial year: 2019-2020, has dawned upon us, let us look at these changes already in effect.

1. Key Tax Changes:

The important thing here to note is that the tax slabs have not changed and the earlier tax slabs will continue. However, there does exist a few benefits and concessions to the taxpayers.

Tax rebate: The tax rebate available earlier for individuals earning annual income up to Rs 3.5 lakh has been now increased. The total income threshold is now Rs.5 lakh which means an increase in the tax rebate from Rs 2,500 to Rs 12,500. However, this rebate is available only to persons having net taxable income up to Rs.5 lakhs and for others with higher net income, this benefit will not be applicable.

Standard Deduction: The Standard Deduction available to salaried employees has been increased from Rs.40,00 to Rs.50,000. With this change, there is an additional tax saving of up to Rs 3,120 for individual taxpayers earning between Rs.10 to 50 lakhs.

2. TDS Limits:

The Tax Deducted at Source (TDS) limits has been changed significantly for the current financial year. The important thing to note is that while the applicable tax does not change on the income, TDS limit extension does benefit small investors as it will reduce the hassles of claiming a refund where the annual income is below exemption limit.

Interest Income: The threshold for deduction of tax at source on interest earned from banks and post office deposits has been increased from Rs 10,000 to Rs 40,000.

Rental Income: The Rent Limit for deduction of tax has been increased to 2,40,000 from 1,80,000 in the previous year.

3. Real Estate:

Some pretty important changes were made related to real estate taxation norms. This will surely benefit a lot of owners and the real estate markets as well.

Notional Rent: From this year, you will not be required to pay income tax on notional rent from your 'second' house lying vacant. Effectively, 'self-occupied' definition is extended to two houses if the other is not let out. Earlier if an individual had more than one house property, he was required to treat anyone as 'self-occupied' and was required to calculate notional rent and pay tax on the other properties accordingly, irrespective of whether the property was on rent or not.

Capital Gains: This year onwards, a taxpayer can claim exemption from capital gains on the sale of house property if the sale proceeds are invested to purchase/construct up to 'two' house properties. This benefit was available to only one property earlier subject to conditions. This benefit shall only be applicable if (a) the long-term capital gains shall not exceed Rs 2 crore and (b) the benefit is claimed only once in the taxpayer’s lifetime.

New GST Rates: The GST is an important component for the housing sector and effective this year, the rates have been further rationalised. For on-going under-construction projects, there is now an option either to charge the GST at 12% with an input tax credit (ITC) or at the new rate of 5% without ITC. In the case of affordable housing, these rates will be 8% with ITC or 1% without ITC.

Popular tax saving avenues:

An important element of income tax rules and also tax planning process for investors is the tax saving provisions available to them. For the new financial year FY 2019-2020, let us have a look at the various options and limits available to us, most of which is a continuation of the previous year.

Apart from the above popular tax saving avenues, there are also some important deductions available for rebate /eligible expenditure made which may not be applicable to all but is still widely used.  

Note: The income tax details are indicative in nature. Please consult your financial advisor /tax expert for more details.