ELSS may give return of more than 10%

The cacophony after the Budget has died down and it is now the time to plan for the future – for next year on how to deploy ones funds in the most lucrative manner.

The markets are slowly rebounding after their shattering descent. However, the upward climb is a little illogical. Although in the last week, the Sensex rose by 275 points to 24952.74 – a two month high on account of foreign funds beginning to pump in money, the evergreen pharma sector is still lagging behind as are the private sector banks (which do not have the unbelievable NPAs that the public sector banks have). I would have been more comfortable and felt that the rebound makes sense if the rise had been uniform. A blow to the middle class has been the slashing of interest rates. The interest rate on the public provident fund has been brought down from 8.7% to 8.1%. On others too the rates have been slashed. Kisan Vikas Patras will now earn 7.8% as opposed to 8.7%. The earnings on senior citizens saving schemes have been eroded from 9.3% to 8.7% and National Savings Certificates will earn 0.4% less at 8.1%. I know the argument is to bring interest rates more in line with market, but considering that this is the main form of savings of over 85% of salaried employees and the middle class, I feel it should have been untouched. And in a country that offers its senior citizens no social security or pension, senior citizen schemes should not be touched.

The main purpose of savings is to ensure that one has an income after retirement to live in a manner one has been accustomed to. Fortunately, one's expenses would be less as children would have flown the nest, houses would have been paid for and one's life demands are less. However, if the income that is being generated from savings is reducing every year (with rates being cut) and inflation, what does one do? Tighten one's belt yet again? It seems unfair. I believe that the only recourse a middle class person has now is to continue working till he drops. He then at least has an income (even though less than he earned before he was sixty) supplemented by his savings. This need has been recognised in many countries. India must follow suit.

Of the savings schemes available which do give a tax break, the ELSS option seems to be the best. Prices of shares are low presently and as these are likely to rise. An investor should get a return in excess of 10%. I am also comfortable with investments in shares as a hedge against inflation. However, as opposed to small caps, my recommendation would be the larger caps or the mid to large caps as an investment as these will not fall dramatically and have the potential to rise significantly.

Real estate too seems a viable option. Prices are subdued and real estate companies are quite desperate for funds. There are bargains available. A word of caution though. Go for known builders with a reputation and purchase only those that are complete – not those that will be ready in the summer of 2017 or the spring of 2018. I was taken aback by the news report that the chief minister is considering a Bill that will regularise illegal constructions completed before December 31, 2015. While I do not wish any building to be pulled down, this seems like giving carte blanche to builders to build more floors than they have permission for as it will get regularised in time.

The writer is MD Cortlandt Rand, and a writer