The new financial year FY2022-23 is here. If you want to become disciplined with your finances, doing certain things at the start of a new financial year can simplify your financial planning needs.
Here are the five things that you need to do now:
1. Analyse your asset allocation: It is essential to review your portfolio’s asset allocation before making any financial decisions in the new financial year. You can rebalance your portfolio’s asset allocation if there is any significant change in your asset allocation because of recent market movements. To illustrate: Let us assume that your ideal asset allocation among equity and debt asset class is 60% and 40%, respectively. During a market rally, the equity allocation in your portfolio may increase to 80%. If you are not happy with the current asset allocation pattern, you can rebalance your portfolio to the original asset allocation. To do that, you can either switch part of your equity investments to debt, or you can increase your debt investment. This rebalancing exercise helps you to keep risk and reward at a level that is optimal for you
2. Review financial goals: Financial goal give a sense of purpose to your investment. So if you have financial goals, then this can be the right time to review your journey towards achieving those financial goals. It can help you understand if you are struggling to achieve a financial goal or if the cost of your financial goal has increased. You need to evaluate your target investment amount and draw an alternative plan with your financial advisor in such cases.
3. Review your investment: While it may not be a good idea to check your portfolio daily, a timely review of your investments can help you understand your investments’ performance. A review of your investment at the start of the financial year will help you figure out funds that have performed exceedingly well and funds that have underperformed its peers. You might want to reconsider further investment in funds that have consistently underperformed its peers throughout the past few quarters.
4. Tax planning: Do you want to have a stress-free financial year-end? If yes, then you need to start Tax Planning at the beginning of the financial year. Tax planning in April gives you enough time to calculate the amount of money you need to invest and start investing smaller amounts regularly instead of investing lump sum at one go. Equity Linked Savings Scheme (ELSS) is a type of equity mutual fund that offers tax benefits to the maximum investment amount of ₹1.5 Lakhs under section 80C of the Income Tax Act. It is one of the best tax saving investment options as it provides wealth creation with tax benefits.
5. Increase your investments: You can fulfil your financial goals earlier by increasing your Systematic Investment Plan (SIP) by a certain percentage every year. The start of the financial year is the best time to increase your SIP. Typically, increasing your SIP investment with an increase in salary can help to reach your financial goal early. Moreover, by increasing your SIP with your salary, you are less likely to spend more on splurges. You can aim for at least an annual 10% increase in monthly SIP investment.
Asset allocation analysis, review of financial goals, review of your investments, tax planning and increasing your SIP amount are the five things you should do at the beginning of the financial year.
This blog is purely educational and not to be treated as a personal advice. For any of your personal investment, insurance, finance and tax planning needs, please contact.