A basic savings strategy adheres to the 50/30/20 Rule of Budgeting. If you are new to the realm of finance, let me introduce you to the 50/30/20 Rule, which states that out of your total in-hand income after tax, 50% should be spent on needs, 30% toward wants, and 20% should go towards savings. By saving more money, this simple rule of thumb not only enables you to meet your financial objectives on time but also enables you to create a healthy budget for the next year 2023. As we are going to welcome 2023 soon, we need not only rely on savings but also a combination of investments that can act as a hedge against any possible downturn. 2022 will always serve as a reminder of high inflation rates, crises, recession concerns, higher loan and deposit rates, etc. Therefore, it is now appropriate to make a combination of savings and investment resolutions to improve one's financial literacy and independence in the coming year by becoming a wise investor rather than a frugal fellow.
Equity Savings Plan:
A normal equity fund invests only in equities; thus, they behave as the stock market progresses. However, a Savings Plan is a hybrid fund investing in a mixture of equity, debt, and arbitrage securities. While Equity helps in generating wealth, the combination of debt and arbitrage acts as a cushion to minimize downside volatility. Thus, they not only offer moderate capital appreciation but also steady income and capital protection. The Equity Savings plan is more stable, running on a much lower risk scale. Additionally, they are taxed like equity funds, which again is a plus point.
An investor having a 5-year time frame and looking for decent returns with moderate volatility can look at this. This fund category is relatively under-tapped; thus, offerings are also less. However, investors can research HDFC Equity Savings fund and SBI Equity Savings Fund for putting in their money.
Saving Plan 2023
Let’s rewind 2022 quickly: NFT Mania, high inflation rate, wars, recession fears, etc. and yet as we welcome 2023, we are optimistic and cautiously bullish on the Indian economy. Therefore, whatever the next 12 months might bring, it is important that we get to our goals in an efficient manner without many headaches. Few pointers:
Rather than only saving money, it makes sense to invest that money and earn returns. It goes without saying that asset exposure can vary from investor to investor.
Have realistic goals which are attainable in a defined time frame
Have a budget: a simple equation of saving 30% before spending helps. Look to cut unwanted expenses. Having different bank accounts for expenses, savings and needs & wants can also be done.
Plan your taxes beforehand: It's January now but many investors start planning their taxes only in March. It makes sense to plan it for the whole year.
Have insurance: COVID if not anything, has shown us the value of human life. Having term insurance and health insurance is a must.
Invest wisely: Asset allocation holds the key here. We still prefer investing in FDs and Real Estate. While higher rates in FDs are demanding a look at them now, allocating funds in different uncorrelated asset classes will help you better.
Let’s take a resolution that this New Year, we are more financially literate and independent than in the erstwhile years.
There are several options for saving and investing which could be a part of your investment portfolio in the coming year depending on your goals and risk tolerance. Some options to consider as part of a savings plan for the next year include mutual funds for your medium to long-term investments as they have the potential to beat inflation and generate good returns. For your short-term or emergency needs, you can consider parking at least six to nine months of your essential monthly expenses in bank or corporate fixed deposits or in liquid funds.
If you are planning to start investing for your retirement, then a combination of investments in PPF and NPS can be a good option as both come with certain tax benefits and good returns to bulletproof your retirement. Equity savings funds could also be considered as these are suitable for investors with moderate risk appetites and risk in these funds is lower than aggressive hybrid funds like Hybrid Equity Funds or Balanced Funds. The main advantage of equity savings funds is low volatility owing to some debt exposure. Having said that before starting any investment in the year 2023 make sure you are adequately insured and have a sufficient emergency fund.
It is important to carefully research and compare the different options available to you before making any decision on where to invest your money. Consider your long-term goals, risk tolerance, and the potential tax implications of different investment options. It may also be helpful to consult a financial advisor to determine the best course of action for your specific investment needs.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
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