Your Investment Game Plan for 2016

It’s that time of the year – when you roll up your sleeves, pick up the calculator and start poring over your financial documents, calculating the returns from your investments, and planning new ones, as you await the budget and hope for a windfall from the finance minister.

So, what should your investment portfolio look like in 2016? Your goal should be to balance risk and return, and manage volatility. Easier said than done, you say? Here are a few tips, but remember, ultimately, your investment decisions should be governed by your risk appetite and investment horizon.

Stocks

Stock markets saw a lot of turbulence in 2014-15. Both the S&P BSE Sensex and the CNX Nifty ended the calendar year with a loss, with the former falling 5.6 per cent, its worst performance in four years. The Central government’s failure to make progress in implementing key reforms, such as land acquisition, and passing the Goods and Services Tax (GST), dampened the sentiment, with the weakening rupee not helping any.

In 2016, however, equity market performance will be driven more by real performance rather than expectations, though markets are expected to remain range-bound. Some correction will definitely take place. Market corrections actually provide a good opportunity to pick up select stocks. For instance, the slump in commodity prices, such as crude oil, steel, cement, etc, translates into lower cost of setting up infrastructure projects. Since the macroeconomic fundamentals of the economy, including fiscal deficit, current account deficit and inflation, are strong, it is only a matter of time before infrastructure and real estate stocks pick up. So, remain on the lookout for the right kind of sector stock. Besides, as in 2015, you can bet on the banking and IT sector in 2016 as well.

Some other picks that look good to go are Amara Raja Batteries, Aurobindo Pharma, Ashok Leyland, HDFC, Axis Bank, LIC Housing Finance, Bajaj Auto, etc.

Mutual Funds

Mutual funds as an asset class did not show encouraging performance in 2015. But discerning investors can look forward to a good yield, provided they understand the basic rule of investing in mutual funds: this asset class is good for long-term investment. Do not jump into funds that have just opened for subscription, even if they have provided good returns over a year or so. Select a fund that has been consistently showing a good performance for at least five years, and has Assets Under Management (AUM) of at least Rs 100 crore. The best way to invest in a mutual fund is through a Systematic Investment Plan (SIP) every month.

If your risk appetite is medium to high, you can invest in large-cap, mid-cap, hybrid funds and sector funds, with sector-funds being the highest-risk bearing funds. Examples of good large-cap oriented funds are Mirae Asset India Opportunities and Birla Sun Life Frontline Equity.

If your risk appetite is low, you can invest in hybrid funds and debt funds, such as Franklin Flexi-cap, or Franklin Pension Plan. ICICI Prudential Discovery Fund, which has now become a multi-cap fund, is another good bet.

Company Fixed Deposits

Company fixed deposits (FDs) are a good investment option for senior citizens, as they give good returns. The rate of interest is generally 1 per cent to 3 per cent higher than the one offered by banks. However, corporate fixed deposits are unsecured loans, and repayment of principal, as well as payment of interest, is not guaranteed. A company fixed deposit will never be as safe as a bank fixed deposit, no matter how sound the company is. But there are several fairly safe company deposits one can invest in, provided one checks credit ratings and invests in companies with AAA ratings, or at least AA rating. Some company fixed deposit schemes of good repute are National Housing Bank’s Sunidhi Term Deposit Scheme, Mahindra Finance, Punjab National Bank Housing Finance Ltd (PNB HFL), Shriram Transport Finance, etc.

Public Provident Fund

One of the best investment options in 2016 is the Public Provident Fund (PPF) scheme. It is a popular long-term investment option backed by the Government of India, offering safety with attractive interest rates. The returns are fully tax-exempt. You can invest a minimum of Rs 500 to a maximum of Rs 1,50,000 in one financial year, and avail of facilities such as loans, withdrawal and extension of account.

With the exemption limit for investment in financial instruments having been increased to Rs 1.5 lakh from Rs 1 lakh in the 2014-2015 Union Budget, and the PPF limit also having been hiked to Rs 1.5 lakh, investing in the PPF scheme, which offers an interest rate of 8.7 per cent, is a good option.

IPOs

The global Initial Public Offering (IPO) market was rather tepid in 2015, with India being the bright spot. According to Reuters, companies raised more than Rs 14,250 crore through IPOs, a seven-fold jump over the previous year. And in 2016, they are set to raise more than twice that amount.

Several financial and tech companies are expected to go public this year, with the big names including Vodafone, HDFC Life, Ujjivan Financial Services and L&T. From the look of things, there are big bucks to be made once the IPOs get going.

In the end, whichever asset class you decide to invest in, make sure it is suitable for your risk appetite, and the amount of time you want to remain invested. And don’t get swayed by glib talkers. Happy investing!

Suneeta Kaul is a journalist, a writer, and a blogger. She tracks the economy, the corporate sector and the stock markets, and is a keen follower of current events. Having started her career with The Economic Times, she has worked for publications such as The Asian Age, Business India, and Thomson-Reuters, among others.