The FY26 Investment Playbook: Here's how you could manage your money this year

Draw up an investment plan right at the beginning of the financial year

Ajay Kumar Yadav

As we step into FY 2025-26, investors are faced with changing interest rate cycles and evolving geopolitical risks. This year, building wealth will basically be a question of having the right combination of growth, stability, and tax efficiency. As market fluctuations become more frequent, a well structured and diversified  investment plan, and sound tax planning will be key to achieving maximum returns while managing risk.

Investors need to be proactive and ensure that their portfolios are robust and poised to exploit new opportunities.

Interest rates and  inflation

The world economy is undergoing a period of adjustment, with changing growth patterns and emerging monetary policies influencing financial markets. Policies on trade, which involve tariff adjustments, are impacting inflation dynamics and economic projections, leading central banks to take measures to ensure stability.

The US Federal Reserve would most probably continue to have a higher interest rate for an extended period of time, while the European Central Bank (ECB) is signalling potential rate cuts. In India, since inflation is slowing gradually, the Reserve Bank of India (RBI) may reduce rates to support growth. This global monetary policy divergence opens up new investment opportunities for investors and impacts capital inflows into emerging economies like India.

India's growth story

India is among the fastest-growing economies globally. Domestic consumption and spending on infrastructure should help the GDP expand by 6.3-6.8 percent in FY26. Bumper rural demand, driven by a healthy agriculture sector, as well as tax cuts in order to spur urban consumption, will also encourage economic growth. The 2025 union budget implemented major reforms, such as zero tax for incomes up to Rs 12 lakh per the new tax regime, in order to boost disposable income.

But international trade tensions remain a worry, with the OECD warning that ongoing quarrels between large economies could dampen global growth, including India's export prospects.

Also read: Income tax cuts, RBI's repo rate reduction and more: Here's how April will impact your wallets

How to invest in FY26

A correct understanding of the key valuation ratios, such as P/E multiples, will help make prudent decisions. Right now, largecaps are a great value buy, and one must be cautious with mid and smallcap investments.

Largecaps

The current P/E ratio for the Nifty 50 is 20.4, which is lower than its 5-year average of 24.79 and the 10-year average of 23.49. We recommend putting your money in largecap mutual funds if you're looking for stability along with growth.

Midcaps

The Nifty Midcap 100 currently has  P/E of 34.5, which is below its 5-year average but above the 10-year average of 30.47. It’s best to choose specific midcap funds that show strong earnings growth and sustainable business models.

Smallcaps
The Nifty Smallcap 100 has a P/E of 26.92, close to its 5-year average of 28.11, but considerably lower than the 10-year average of 33.11. One should invest with caution in smallcaps, focussing on strong fundamentals and risk assessment.

Also read: Stock market rebound: How should retail investors position themselves?

Debt investments

Retail inflation declined to 3.61 percent in February 2025, a seven-month low. This gives the RBI elbow room to cut rates, which would benefit bond investors. Because interest rates are likely to fall, medium to long-term bonds and open-ended bond funds have good potential for capital appreciation.

The best fixed income instruments in the current scenario are:

- Medium to long-term debt mutual funds.
- AAA-rated corporate bonds for safety and returns.
- Listed bonds eligible for LTCG at 12.5 percent after one year of holding.
- Tax-efficient long-term debt fund of funds (FoFs) qualifying for LTCG at 12.5 percent, post a two-year holding period

For retirees, investment in highly rated bonds will provide secure returns when interest rates are falling. Those in the highest tax bracket must consider listed bonds and debt FOFs for tax efficiency.

Gold and multi-asset funds

Gold prices are  at a record high, underscoring its standing as a hedge asset. A staggered investment plan can shield one from short-run uncertainty while exploiting the asset's long-term value.

Multi-asset funds offer diversified investments in equity, debt, and gold, and this ensures stability during market volatility.

Reassess global equity investments

US largecaps look expensive, so investors can reduce exposure to American stocks and shift to Indian largecaps.

Also read: US elections: With 38% returns this year, US-focused Indian mutual funds offer better geographical diversification

Chalk out an asset allocation plan

A successful asset allocation strategy is the cornerstone of long-run economic success. Investors should structure their portfolios according to their risk tolerance, investment time frame, and for maximum tax efficiency.

For instance, a retiree's portfolio must be created with the highest safety and tax efficiency in mind. Those on a pension should have more fixed-income investments that qualify for LTCG (long-term capital gains) and are taxed at 12.5 percent. They can also invest in multi-asset and hybrid funds, whereas non-pensioners can invest in the Senior Citizen's Savings Scheme, RBI bonds, and highly rated corporate bonds to earn tax-free income of up to Rs 12 lakh annually. Any remaining corpus can be deployed in multi-asset  funds, hybrid funds, and equity  per their risk appetite.

FY26 will be all about selective equity exposure, medium-to-long-duration debt, gold for hedging, and tax efficiency. Diversification and a disciplined investment strategy will be key to ensuring sustainable returns. Investors must ensure proper asset allocation based on their  financial goals and closely monitor the market valuation, interest rates, and industry opportunities. By incorporating macroeconomic intelligence into one's portfolio strategy, investors can secure their financial future.

The author is the CEO and CIO, Wise Finserv.

Disclaimer: The views expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.