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The Union Budget is an annual event that describes the government’s spending plans and how government intends to fund it. However, many individuals try to predict the government’s action and try to make money out of it. Here are three investment mistakes you should be avoiding just ahead of Union Budget 2018.
Getting into cash
There is a talk of increase in taxes on gains in investments in shares. Some predict that in Budget 2018, the government may hike the rate of short term capital gains tax to 20% from extant 15%. Some expect that the government may bring back tax on long-term capital gains (LTCG) or may change the holding period to qualify for long term capital gains to two years from one year now.
Some investors may think of cashing out equity investments that have completed one year ahead of budget, just because the current laws attract less tax as compared to the expectations. However, this may not be a prudent action. “If such changes do not happen, then the market may run up and the investors have to redeploy their money at a much higher level,” points out Suresh Sadagopan, founder of Ladder7 Financial Advisories. Even if the expectation materialises, you have time to take corrective actions in the month of February and March. Generally the tax proposals are implemented from April 1.
Trading on stocks tips
This is a common mistake many novice investors commit. Many experts express their views on what to expect from budget. Based on these there are many tips floating around about which stock to buy. If you do not understand the businesses behind individual stocks, do not try to trade them with a view of making a quick buck. “There is a high possibility that such trades may backfire leaving you in losses. Instead sit out and let the markets stabilise,” says Jignesh Shah, founder of Capital Advisors, a wealth advisory firm based in Mumbai.
“There are some investors who end up buying Nifty Call Options with a view that the broad markets will go up. And there are some investors who buy Nifty Put Options expecting the markets to go down. However due to event risk, the premiums are inflated ahead of budget and these investors rarely make money unless the moves are really big,” points out an analyst with a life insurance company who wish not to be named.
To put it simply, the market may have already factored in such changes by adjusting the prices. Even if the predictions come true, the smart traders get out quickly as they have entered at a lower price and you may be saddled holding your budget trade as prices move lower than your entry price.
Buying investment products thinking benefits may get reduced
This is a good trap, you will face just before and after the budget. Financial products such as insurance policies, investment schemes are marketed stating that the current benefits will be reduced after the budget or from April 1. The false sense of scarcity makes investors fall for such claims. Most of these products are not recommended by any investment advisors and do not add value to the buyers. Buyer beware.
“Some individuals also try to buy things including gold anticipating a rise in duties,” points out Suresh Sadagopan. Such acts should be avoided as sometimes the individuals end up buying things that he do not want. And even if the predictions come true, then the benefit is minimal.
Individual investors should ideally sit out and do not try to trade ahead of budget. It is akin to catching a moving train, a wrong move cost you a lot. Too much trading activity ahead of budget may not only erode your wealth but also take away your peace of mind.
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