Best Investment Plan for 2019

2019 could be the year of opportunity after a rather challenging 2018 for Indian investors. 2018 saw a flat Nifty/Sensex and huge corrections in mid and small caps. The rupee depreciated against the dollar from 63 to 70 and the IL&FS crisis hit the debt and equity markets badly. Further, rising NPAs and the liquidity crunch negatively affected the growth of the banking sector, especially of NBFCs and PSBs. However, the market corrections in 2018, present investors with a strong opportunity in the coming year. The general election also presents a great opportunity for investors to accumulate mutual funds at lower levels, in case of a market correction. Here is a series of investment plans for different types of investors:

Age Bracket 20-35

Young professionals who are just starting their careers have a relatively higher risk appetite due to lesser responsibilities and thereby grow their wealth at a fast pace. Starting early can allow their money to compound a lot more than starting at middle-age. However, such investors must be prepared to handle volatility and stay invested for at least 5 years.

Mutual Fund Investment

Such professionals to look to target high return-high risk mutual funds as a big chunk of their investment corpus, such as the ones suggested below.

Mutual Fund 5-Year Returns 3-Year Return
L&T Midcap Fund 12.68% 18.73%
HDFC Small Cap Fund 15.61% 16.46%
SBI Small Cap Fund 14.22% 24.94%

Source: Value Research, Data as on May 13, 2019

Tax-Saving Mutual Funds

Those who are looking to save tax under Section 80C should look at ELSS (tax-saving funds). These funds are eligible for tax deduction on investments up to Rs 1.5 lakh per annum.

ELSS Fund 5 year returns 1 year returns
Axis Long Term Equity Fund 12.52% 16.07%
Mirae Asset Tax Saver Fund 18.42%
Aditya Birla Sun Life Tax Relief 96 11.47% 16.17%

Source: Value Research, Data as on May 13, 2019

NPS

Such investors should also ensure that they take advantage of NPS to save tax and build a retirement corpus. The deduction under Section 80CCD(1B) up to Rs 50,000 per annum is available exclusively for NPS (National Pension System) apart from the Rs. 1.5 lakh tax deduction limit available under section 80C.

Pension Fund (Tier 1, Equity) 5 year returns 1 year returns
HDFC Pension Fund 13.55% 10.67%
UTI Retirement Solutions 12.82% 11.07%
SBI Pension Fund 12.82% 10.33%

Source: Value Research, Data as on May 13, 2019

Insurance

Young investors should opt for term insurance if they have financial dependents. Term insurance is a low-cost method of protecting the financial security of your dependents. Term Insurance premiums are also eligible for tax deductions under Section 80C of the Income Tax Act. 1961.

These investors should also go for a medical insurance policy. Medical insurance premiums tend to be low at younger ages and are also tax deductible under Section 80D of the Income Tax Act, 1961 up to Rs 25,000 per annum.

Age Bracket 35-60

Investors in the 35-60 age bracket will typically be mid-career professionals. They would also have families/dependents and various financial goals approaching such as children’s education or weddings. Such investors should opt for growth investments with a moderate level of risk.

Mutual Funds

Investors in the 35-60 Age Bracket should go for large-cap and multi-cap mutual funds which have a combination of growth and stability.

Mutual Fund 5 year returns 1 year returns
Axis Bluechip Fund 13.60% 12.37%
Aditya Birla Frontline Equity 10.37% 11.60%
PPFAS Long Term Equity 12.78% 14.11%

Source: Value Research, Data as on May 9, 2019

Tax-saving

Those who are looking to save tax under Section 80C should look at ELSS (tax-saving funds) These funds are eligible for tax deduction on investments up to Rs 1.5 lakh per annum.

ELSS Fund 5-Year Return 3-Year Returns
Axis Long Term Equity Fund 12.52% 16.07%
Mirae Asset Tax Saver Fund 18.42%
Aditya Birla Sun Life Tax Relief 96 11.47% 16.17%

Source: Value Research, Data as on May 13, 2019

National Pension System (NPS)

Such investors should also ensure that they take advantage of NPS to save tax and build a retirement corpus. The deduction under Section 80CCD(1B) up to Rs 50,000 per annum is available exclusively for NPS (National Pension System).

Pension Fund (Tier 1, Equity) 5-Year Return 1-Year Return
HDFC Pension Fund 13.55% 10.67%
UTI Retirement Solutions 12.82% 11.07%
SBI Pension Fund 12.82% 10.33%

Source: Value Research, Data as on May 13, 2019

Insurance

Investors in the 35-60 age bracket are likely to face higher premiums than young professionals while buying insurance. Some of them may already have insurance policies. These investors should look at buying policies with riders such as critical illness and accidental benefit.

For example, a critical illness rider pays out a fixed sum of money on the diagnosis of a specified illness without requiring any medical bills to be submitted. As the chance of illness rises with age, such riders can prove extremely useful. In addition, if investors in this age bracket don’t already have a medical insurance policy, they should look to add one. Medical Insurance policies are tax deductible under Section 80D of the Income Tax Act, 1961 up to Rs 25,000 per annum.

Age Bracket 60+

Investors above the age of 60 will typically be retirees or individuals approaching retirement. A relatively conservative portfolio of investments works best for such investors. Such a portfolio will have a high proportion of fixed income options like FDs but also some conservative mutual funds to provide a level of growth. This is because a retirement portfolio has to last a long time (sometimes more than 30 years) and this cannot be achieved by fixed income/FDs alone.

Fixed Income

Senior Citizens should make full use of the fixed return options that are available to them. The Senior Citizens Savings Scheme (SCSS) has an interest rate of 8.5% and the Pradhan Mantri Vaya Vandana Yojana has an interest rate of 8%.

Senior Citizens also get 0.5% higher interest on bank fixed deposits. They also get a tax deduction up to Rs 50,000 on bank interest (compared to just Rs 10,000 for savings account interest for the general population).

Instrument Interest Rate Tenure
National Savings Certificate 8.0% 5 years
SCSS 8.5% 5 years
PMVVY 8.0% 10 years
Bank FDs 6-9% 7 days – 10 years

Mutual Funds

Investors in the 35-60 Age Bracket should go for large-cap and multi-cap mutual funds which have a combination of growth and stability.

Mutual Fund 5 year returns 1 year returns
Axis Bluechip Fund 13.60% 12.37%
Aditya Birla Frontline Equity 10.37% 11.60%
PPFAS Long Term Equity 12.78% 14.11%

Source: Value Research, Data as on May 9, 2019

Tax-saving

Those who are looking to save tax under Section 80C should look at ELSS (tax-saving funds) These funds are eligible for tax deduction on investments up to Rs 1.5 lakh per annum.

ELSS Fund 5-Year Return 3-Year Returns
Axis Long Term Equity Fund 12.52% 16.07%
Mirae Asset Tax Saver Fund 18.42%
Aditya Birla Sun Life Tax Relief 96 11.47% 16.17%

Source: Value Research, Data as on May 13, 2019

National Pension System (NPS)

Such investors should also ensure that they take advantage of NPS to save tax and build a retirement corpus. The deduction under Section 80CCD(1B) up to Rs 50,000 per annum is available exclusively for NPS (National Pension System).

Pension Fund (Tier 1, Equity) 5-Year Return 1-Year Return
HDFC Pension Fund 13.55% 10.67%
UTI Retirement Solutions 12.82% 11.07%
SBI Pension Fund 12.82% 10.33%

Source: Value Research, Data as on May 13, 2019

Insurance

Investors in the 35-60 age bracket are likely to face higher premiums than young professionals while buying insurance. Some of them may already have insurance policies. These investors should look at buying policies with riders such as critical illness and accidental benefit.

For example, a critical illness rider pays out a fixed sum of money on the diagnosis of a specified illness without requiring any medical bills to be submitted. As the chance of illness rises with age, such riders can prove extremely useful. In addition, if investors in this age bracket don’t already have a medical insurance policy, they should look to add one. Medical Insurance policies are tax deductible under Section 80D of the Income Tax Act, 1961 up to Rs 25,000 per annum.

Age Bracket 60+

Investors above the age of 60 will typically be retirees or individuals approaching retirement. A relatively conservative portfolio of investments works best for such investors. Such a portfolio will have a high proportion of fixed income options like FDs but also some conservative mutual funds to provide a level of growth. This is because a retirement portfolio has to last a long time (sometimes more than 30 years) and this cannot be achieved by fixed income/FDs alone.

Fixed Income

Senior Citizens should make full use of the fixed return options that are available to them. The Senior Citizens Savings Scheme (SCSS) has an interest rate of 8.5% and the Pradhan Mantri Vaya Vandana Yojana has an interest rate of 8%.

Senior Citizens also get 0.5% higher interest on bank fixed deposits. They also get a tax deduction up to Rs 50,000 on bank interest (compared to just Rs 10,000 for savings account interest for the general population).

PMVVY8.0%10 years

Bank FDs6-9%7 days – 10 years

Instrument Interest Rate Tenure
National Savings Certificate 8.0% 5 years
SCSS 8.5% 5 years

Mutual Funds

In addition, senior citizens can also look at getting some growth through mutual funds. This will enable to meet their retirement expenses, further on into retirement and leave an inheritance for their family. These should be relatively conservative mutual funds such as hybrid funds.

Mutual Fund 5-Year Return 3-Year Return
ICICI Balanced Advantage Fund 10.07% 10.82%
L&T Hybrid Equity Fund 8.91% 12.67%
HDFC Balanced Advantage Fund 12.09% 12.09%

Source: Value Research, Data as on May 13, 2019

Insurance

Unfortunately, many insurance policies have upper age limits for eligibility and senior citizens may not be eligible. Typically an upper age limit of 65 is imposed. Even if you are eligible to buy the policy, the premium at this age is likely to be very high.

That said, the need for life insurance still exists, even if you are a senior citizen – if you have financial dependants such as a spouse or child with special needs. If you are able to satisfy the upper age limit, consider buying a term insurancepolicy for these purposes.

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