FundsIndia Strategy: The Budget and Your Investments

Budget 2015 may not have any big bang reform announcements to showcase to the world. But the proposal, at least in words, means business in terms of strengthening the fiscal position, decentralising growth, cutting out freebies where warranted, and focusing on execution.

The budgeted spending also makes the right noises in terms of igniting India’s growth engine by way of increased spending in infrastructure by providing itself some additional fiscal space.

The Budget may appear to dole out goodies to companies and individuals by way of lower corporate tax and higher deductions for individuals. However, it has, in a less conspicuous fashion, resorted to rationalisation of tax exemptions available for companies, even as it proposes to increase the cost of services that a consumer avails by increasing the service tax as well as excise duty.

Please click the links below to read the impact of the Union Budget on:
– Investors and tax payers
– Different sectors
– Economy as a whole

In our view, the small incentives in terms of more tax deductions to you pale in comparison, when seen against the benefit that you will derive in your equity and debt portfolio from economic reforms. It is for this reason that you should not get too carried away with the Budget’s goodies. Increasing your health cover if you are already adequately covered, or locking into a product that does not fit you simply because of the tax benefits may be imprudent strategies for wealth building.

What should you do?

We think it is best to let your portfolio be. There is nothing short-term in nature in the Budget for you to take immediate exposure to. The equity fund managers of your funds will be best placed to take the right exposure to stocks at the right time. As we opined earlier this year, it is time now to be discreet in stock picking and not merely picking the right sectors, given that valuations are not cheap.

If you are particular about specifically riding the ‘spending’ story that the Budget has scripted, a fund like Franklin Build India would be a choice. However, that is only if you want a theme, and if you are willing to take risks while limiting your exposure to not more than 5-10 per cent of your equity portfolio.