4 simple steps for a financially successful 2024

Emergency corpus takes a front seat

Planning for contingencies was the top priority for individuals, in 2023 and there is a significant change with people not wanting to be dependent only on employer cover and topping up health insurance externally. With constant news of younger people suddenly dying and job insecurity — given what we saw during Covid-19 times — families are opting for increased life and health insurance cover.

Keeping tax documents in order

Citizens are also waking up to the importance of keeping tax documents in order. The large number of income tax notices issued for FY21-22, for improper HRA claims and non-declaration of foreign equity holdings jolted taxpayers to be mindful of getting documentation right.

Also read | Old vs New tax regime: What to choose and how?

What didn’t work?

A rebound from July led to a large number of new demat accounts (up 60 percent in the last 2 years) and huge inflows in equities. Clearly, chasing investments based on recent performance continued, going by the buying numbers of small-cap stocks. What is also a matter of concern is the investor interest in derivatives, specifically F&O trading, which is much larger than the cash segment. As per reports, from April to November 2023, the amount of derivative contracts purchased by retail investors was 85 percent of that purchased in the whole of FY23. Most individual traders are in the 20-40 age group and are driven by the lure of quick, exponential returns.

What to look forward to in 2024

The key factors driving growth in 2023 were the Indian economy expected to grow at more than 7 percent, political stability, interest rates peaking out, slowing inflation and expectation of rate cuts in the US. However, markets in 2024 have had a sedate start due to tensions in the Red Sea, newer geopolitical tensions, valuation worries and fear of limited interest rate cuts in the US based on recent economic data. Going forward, global and domestic inflation, slowing global growth, geopolitical tensions and political uncertainty till election results can keep markets volatile. Sudden market falls can be unsettling, but investors must remain perseverant and focus on long-term goals over short-term setbacks. Historical data shows that despite all the negative events, Indian markets have given a compounded return of 13-16 percent per annum over most of the 5-40 year time periods.

Also read | Three sector funds in spotlight after interim Budget 2024

Avoid social media for investment advice

Attention spans are getting shorter and investors are taken in by all that they hear in their circles and social media. Investors should remember that the financial situation of others is different from theirs and hence investing based on others' tips may not work out. With markets expected to be volatile, reading up is a good way to keep out the noise. Remember, greed kills and there is no way to make quick money consistently. Stay away from Futures & Options (F&O). Data from market regulator SEBI shows that 90 percent of F&O traders make losses.

Focus on investments which beat inflation

Investors should check if their investments are giving a positive return post tax and post inflation. If not, they need to do a serious rethink on how to reallocate their portfolio. The typical laggards would be investment linked insurance plans and post office schemes like NSC. It would take a lot of courage to exit at a loss or low returns but one needs to bite the bullet if one wants to grow wealth.

Keep documents

Finally, ensure financial documents are in order. The cost of improper tax filing or non-declaration is much more than the money saved by tax harvesting.