Is it time to pivot to equity mutual funds?

The recently announced Union Budget has been mostly welcomed by everyone. While, some exalted when they heard about the increase in capital expenditure, others were overjoyed at seeing that India’s deficit was ‘in control’. A third segment was elated on observing that the capital gains regime has not been tinkered with.

However, many brows furrowed on listening to announcements related to ‘Direct Tax’.

Scything through the thicket of ‘rebates, exemptions and deductions’ is bound to tax anyone even in a ‘normal’ year. However, this year came with the added wrinkle of comparing the pros and cons of ‘old regime vs new regime’.

While no one disputes the desirability of jettisoning ‘dirigiste‘ redirection of savings towards certain investment options, it is also a ‘fact’ that a more freewheeling era may lead to a change in the leaderboard.

While some are (accurately) lamenting the impending demise of Equity Linked Savings Schemes (ELSS), in my view, it is the Life Insurance sector which may be quaking in its boots.

On February 1, 2023, Hon’ble Finance Minister Nirmala Sitharaman announced that from the commencement of the next financial year, income from life insurance policies (other than Unit Linked Insurance Plans) with an aggregate premium amount of Rs. 5 lakh per annum or more – which was earlier tax-free – will now be taxable.

While some Pollyanna may heave a sigh of relief that this momentous change does not extend to ‘death-benefit’, I feel that it is akin to clutching at straws. There is little doubt that the cat has now been set among the pigeons… and an entire industry which reveled in touting its ‘tax-efficient’ returns may soon face a reckoning.So what does an ‘investor’ do in such circumstances? My recommendations:

The breadwinner(s) in every family should ascertain their actual life insurance requirement and then purchase a Term Insurance Policy to protect one’s surviving family members against the financial risk of his / her / their untimely demise.

The residual amount (the difference between the premium payable for the erstwhile investment-oriented policy and the current Term Insurance Policy) could be routed into equity mutual fund schemes.

However, the smorgasbord of equity schemes is varied enough to confuse any new investor. It is here that a qualified financial advisor steps in.

If you ask me, I may say that one large-cap Indian index fund and one flexicap fund with broad-based exposure in Indian and international stocks should suffice.

However, as I am unaware of your financial situation and risk appetite, I suggest you rely on an able advisor to help you achieve your financial goals.

Views are personal: The author -: Shalab Gupta Bibhab, Founder, Bibhab Capital, Agra

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