Do the new rules affect you?

What should someone do with a 12 or 13 month goal? I use these two terms simply because over the course of a year there could also be tax changes. So what should someone with a goal like this do? Should he have any exposure to equity funds or is it better to be leveraged? If she has already started a SIP in an equity product with a 12 or 13 month time horizon, from a goal perspective, is it still a good idea to switch to a debt product?

Vishal Dhawan: Obviously, the macro environment shouldn’t dictate this at all. What we end up discovering very often is that there are unexpected events – both positive and negative – that occur and impact the stock markets, whether in India or internationally. Therefore, if you have a 12-13 month investment horizon, equity is by no means really your answer.

If you started stock SIP with a 12-13 month horizon, you should stop it immediately. There is no reason to run equity SIPs for 12-13 month targets.

You should also keep in mind that if your strategy is SIP then effectively your last installment will literally only be a month old, your penultimate will only be two months old before you need the money .

Obviously, these are not the right investment horizons for stocks. Our suggestion is that, at least for those in the higher tax brackets, they should look very carefully at options like hedge funds, if they have a 12-13 month time frame. They have the benefit of getting 15% short-term tax treatment, which means that if they hold less than 12 months, they will be taxed at 15%. If they hold more than 12 months, they will be taxed at 10%. This could be one of the alternatives.

The second alternative is to look at the type of products to hold to maturity, which can also exist in the debt space, but on a shorter term. We are used to longer-term hold-to-maturity instruments. There are also short-term ones. Some of them could mature, for example, in 2023. Therefore, these could be instruments that you could consider, or there could be funds designed with a rolling structure. The securities they hold will all mature at some point in the next year. So there are specific patterns available in these instruments that investors can look into.

Obviously if they’re just trying to match their 12 month, 13 month investment horizon with the product, then ideally very short term funds and low duration funds because the categories are very interesting for Investors.

Basically, these are the three big spaces that investors can potentially look into if they are running a 12-13 month strategy.

Dolores W. Simon