financial planning: ETMarkets Smart Talk: If you make Rs 1L/month, consider 50/30/20 rule for financial planning, says Raghvendra Nath

“Investing in long-term stocks or mutual funds is one of the best ways to beat the inflation monster. Everyone who earns an income should follow the 50:30:20 rule in their financial planning,” says
Raghvendra Nath,
General director,
Wealth management.
In an interview with ETMarkets, Nath said, “The 50/30/20 rule of thumb is a good starting point for allocating your budget: 50% to ‘needs’, 30% to ‘wants’ and 20% to your financial needs. .goals” Edited excerpts:

September proved to be a volatile month for stocks where 60,000 on Sensex acted as resistance while for Nifty50 18,000 proved to be a big hurdle. How do you see the markets evolving during the month of the festival – October?

The soaring dollar caused by aggressive monetary tightening, slowing economic growth and growing demand from wary investors is causing turbulence in the global stock market.

This is wreaking havoc on the domestic market, due to weakening INR, rising bond yields and bearish trends among Asian peers.

While domestic investors have a strong appetite for optimistic narratives, we cannot ignore the risks of high inflation, which has forced central banks around the world to raise interest rates.

India’s economy is growing at a relatively fast pace, but sluggish export markets will hurt, even as the majority of global capital flows react to US monetary policy tightening, and a rupee that has lost its internal value and external could undermine macroeconomic stability.

We will be waiting for USD INR to slide below 80.7 in the coming days to invalidate bullish expectations in the market.

Looking ahead, for Nifty, the 200-day SMA and 16,850 would be important support levels for traders. On the other hand, the bulls may face immediate resistance at 17,150 and 17,200.

What are your expectations of India Inc. for the September quarter?

High commodity prices hurt Indian corporate profitability in the fiscal first quarter, although the pass-through of some of the cost burden contributed to revenue growth.

Increased consumption, especially rural demand, will boost incomes. There is pressure on the operating performance of manufacturing companies that was somewhat expected, and many companies reported a sequential decline in operating profits due to rising input costs.

Growth is driven by cyclical sectors such as banks, capital goods and consumption. Metals, autos, information technology and cement led the contraction.

As inflationary pressures ease, there is hope for better performance in S2FY23, assuming no further negative triggers occur by then. However, crude oil price volatility, monetary tightening, and any spike in geopolitical tensions around Russia and Ukraine could still hurt the supply chain.

How do you view gold during festival season?

Last week, gold traders in India were offering a discount of up to $2.5 an ounce from official domestic prices, down from the $3 premium the previous week.

Today, gold struggled in Indian markets as international rates remained near two-and-a-half-year lows. Gold futures contracts on the

fell to almost six months of 49,295 per 10 grams before recovering ground.

Thus, the prices of the yellow metal have recently fallen on the national and world markets. Global gold rates have fallen 20% since hitting $2,000 in March as rapid monetary tightening by the US Fed made non-performing gold less attractive.

In response to the Fed’s aggressive monetary tightening, the US 10-year rate approached the 2010 high. Gold lost luster on global market corrections and a higher dollar index .

A sustained rise, in my view, is unlikely until the US Dollar reverses from its peak. However, from a festival perspective, an increase in gold purchases for consumption can be expected at this corrected level.

Since the interest rate is likely to rise, what should be the right portfolio mix for investors looking to stay invested for, say, 5 years?

Rising interest rates do not affect all industries equally. It is possible to select stocks that are less vulnerable to rate increases.

Capital-intensive industries, such as capital goods and infrastructure, are likely to be more affected than segments such as IT and services.

Rising interest rates can benefit the banking sector. Banks are expected to grow in the coming years due to the economic recovery, increased investment spending and the surge in consumer lending.

The banking sector underperformed the overall market due to issues such as slowing bank credit growth and pressure on asset quality.

Bank credit growth has been subdued in recent years, mainly due to weak demand and balance sheet constraints.

Over a one-year period, pharmaceutical funds delivered a negative return of 11% to investors. After underperforming the previous year, the pharmaceutical sector appears to be on track to perform well over the next five years.

Also, capital goods is another sector that can be studied. Another sector to watch is banking.

Domestic consumption in India has seen a healthy recovery from the covid pandemic and is seen as a key driver for future growth. Indeed, retail sales data shows a significant increase in consumption this year so far.

What’s your take on the small-mid cap space that has managed to turn the tide? What should be the ideal portfolio composition for small and mid caps?

The first half of 2022 has been a very volatile market due to domestic and international issues. We think the market has priced in the short-term negatives.

The mid-cap index is likely to rise as inflation can be contained, and the war between Russia and Ukraine has come to a conclusion, and there is now a good monsoon.

We expect mid and small cap stocks to perform better due to their volatile nature and ability to recover quickly.

Mid and small cap stocks tend to rally more sharply than blue chips when the market moves north. However, they drop just as sharply when the market drops.

We expect large cap stocks as well as mid and small cap stocks to be added in the coming months in consumer, automotive and private sector banks to comfortably outperform the market.

During periods of economic recovery, mid and small cap stocks tend to perform well.

What is the wealth management space like in India? How do HNIs invest their money? What about international funds or stocks?

It is a well-known fact that over 95% of investors invest in their home country and miss out on the wealth generated outside of their country.

Thus, one would ignore the great investment opportunities there. Every country has different economic cycles and having a small portion of your portfolio outside of India can help mitigate country risk and increase portfolio returns when the domestic market is down.

Consider having some exposure to international funds once your domestic MF portfolio is well diversified. Ideally, an average investor should have between 5% and 10% exposure to international funds.

Some international markets have a low correlation with our Indian markets. This low correlation, particularly with developed markets, reduces portfolio volatility and ensures adequate diversification. Not to mention that these serve as a hedge against the depreciation of the rupee.

If someone invests only through SIPs, then ideally how many SIPs should they open per month? What is the ideal diversification if someone earns Rs 1 lakh/month?

To compensate for the inflationary decline in purchasing power and therefore in savings, one must choose investment options that have the potential to offer a much higher return.

Investing in stocks or mutual funds for the long term is one of the best ways to beat the monster of inflation. Each person who wins must follow the 50:30:20 rule in their financial planning.

The 50/30/20 rule of thumb is a good starting point for allocating your budget: 50% to “needs,” 30% to “wants,” and 20% to your financial goals.

Ideally, one should consider investing 20% ​​of the income and gradually increasing the same. Before starting a SIP in a mutual fund, make sure the mutual fund’s objectives and risk levels match your risk tolerance and profile.

However, keep in mind that SIP returns are not constant. They are entirely determined by market conditions.

Large-cap stocks are expected to return 12-18% on average, while mid-cap stocks are expected to return 14-17% on average.

(Disclaimer: The recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)

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