“The ups and downs in the market is giving me the jitters. I have invested in shares and mutual funds for my children’s bright future and I fear what is going to happen. Should I off-load all my shares? Should I stop investing and lock my money in fixed deposits?” – these are typical queries that worried parents are putting forward, after the markets started fluctuating this week.
Parents are not sure where their money will be safe and since most people do not understand the nitty-gritties of investments and returns, they feel they are left in the lurch. The introduction of 10 per cent long-term capital gains tax (LTCG) coupled with the falling of the global markets (the US market witnessed a single-day plunge of 1,400 points in the worst intraday low), seems to have left many people apprehensive. But do not let emotions get the better of you.
“The Government has clarified that the new tax regime will come into place only from April 1. So, parents who have long-term holdings can still make money within the next two months. For example, if you have 10-year-old shares that have performed decently over the years, this is the time to off-load them and not bother about being taxed later,” says Sachin Ramnivas Bansal, chartered accountant and finance expert.
Common mistakes parents can avoid when making investments:
1. Do not panic or take abrupt decisions
Fear is your biggest enemy. When you have invested in shares or mutual funds there is always some amount of risk and investors should be prepared for it. Do not make any investment choices based on fear. If you invest long-term, you are less likely to be hit by market fluctuations.
2. Do not invest in a single sector
Right now, the share market does not look too attractive, especially for parents who mostly belong to the salaried class. So, to avoid major losses, put your eggs in different baskets, says Sachin. It is a good idea to diversify your portfolio, instead of putting all your money in a single company or a specific sector. In this way, even if one investment does not perform too well, the loss is cancelled out by the returns you may get through funds from another source.
3. Ignore unnecessary speculations
Whenever a new tax regime is introduced and there are sudden, adverse changes in the market, speculations run rife. Stand your ground and do not get swayed by rumours or speculations. The best thing is to consult your financial advisor on the way forward.
4. Avoid risky investments that give short-term benefits
Usually, investments that give high returns in a short period of time are the ones that get heavily affected by market changes. This might be suitable for regular investors who have a large amount of money devoted to various sectors. For an average parent, a low or medium risk fund that will give long-term benefits is safer option.
5. Do not sit on idle money
Just because the market has crashed, and you may have suffered a bit of scalping because of the effect it has had on your investments, it is not time to withdraw. “The inflation rate is going up every year and middle-class families cannot afford to sit on their money without making smart investments. They must think of saving for the future. Therefore, parents should not let their money stay idle in bank accounts. Invest smartly in long-term mutual funds, SIPs, real estate, insurance policies and so on. These will eventually give you good returns,” says Sachin.
There are many avenues to ensure that your money is safe, and your children have a comfortable future. We give you some tips on where you can invest:
1. SIPs - Setting aside a small amount every month is a good idea. Put your money in a Systematic Investment Plan (SIP), which is a mutual fund that requires a regular monthly investment that you can continue for a long time.
2. Long-term MFs - A good idea to accumulate wealth is to plan your portfolio with a mix of many long-term mutual funds that are trustworthy.
3. Unit-Linked Insurance Plan (ULIP) – This type of insurance policy gives you life insurance cover while also giving you an investment option, under a single integrated plan. You also avoid being taxed.
4. Public Provident Fund – Even though your money will be locked for at least 15 years in a PPF plan, you eventually get good returns and the interest is tax-free.
5. Real Estate - You always have the option of investing in real estate. Even if you have limited resources, look at credible options where you can join with like-minded people and invest in land as a community.
Remember, there will always be some amount of risk when you make market-linked investments for yourself and your family. But if you are shrewd in your money decisions, you are bound to reap the benefits.
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