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The Union Budget is quite the most crucial aspect for investors in terms of annual events. Through the financial budget, an investor gets exceptional insights into what the Government would prioritize in a financial year, so they can prepare. According to the new information, an investor can suit himself to newer strategies and make the most out of the markets.

After the Pandemic, the Government needs to help recover the country’s economy. And let us be honest here, the new growth-oriented budget of 2021 has ticked the right boxes into this recovery process. But what does this new budget mean for an investor? So as an investor, should you be sitting tight on mutual funds or rework the strategies? Let us get started on the answers to these questions.

It is Time to be Cautious with Equity Investments

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Do you know, even the most optimistic of investors do not think that the equity market would be at an all high after the pandemic in 2020? Global markets, lessening lockdowns, firms restarting operations, and steady growth in the number of new retail investors are just a few of the factors driving the present market frenzy. The growth-focused Budget 2021 increased investor confidence even further. But will this upward trend continue until 2021?

If industry experts are to be believed, stock investors should exercise extreme caution while making investments. Almost every prominent indicator suggests that the market may see a sharp correction in the coming months. Once the correction happens, the market may remain range-bound for the rest of the year.

Should you Cave in Gold?

The Budget of 2021 has proposed to reduce the customs duties from 12% to 7.5% on the metal gold. Moreover, infrastructure and agriculture cess has been imposed on gold. There are expectations that the gold prices will underperform in the short term because of these proposals. But we all know gold is used as a hedge fund by investors when we experience an uncertain market. Given the high liquidity in the Indian financial system, the prices of gold can appreciate in the mid or long term. So yes, as an investor, you can allocate a certain amount of your portfolio in physical or digital gold.

Adjusting your Mutual Fund Portfolio

It is a time for investors to reallocate assets over existing mutual funds. Use the market movements to the advantage. The equity market is expected to correct from the current level, in the sectors such as infrastructure, IT, and healthcare, and they are, without a doubt, predicted to deliver decent returns. 

If you have invested in long-term funds, you can consider switching to short-term, liquid, or overnight funds. For 2021, a 40:60 or 30:70 mix of sector-specific equity funds and short-term debt funds is strongly suggested. You can change the ratio to suit your risk tolerance and investment goals.

How to Manage your Mutual Fund Investments After the Budget?

The budget for 2021 has made it clear. Investors should be using a defensive and not aggressive investment approach for this financial year. So, book your profits and reallocate funds in a smart manner to make up for the best available opportunities.

Interest Rate Cuts

The government’s large borrowing plans announced in Budget 2021 suggest that interest rates may begin to rise in the coming months. When interest rates begin to climb, the bond market’s three-year boom may come to an end. This might have a detrimental influence on the yields of debt mutual funds.

While the RBI did not raise the interest rate in its most recent February 2021 monetary policy, the inflation target range has been lowered to 5-5.2%. This was 4.6-5.2% in its December 2020 monetary policy. However, the RBI has suggested that the cash reserve ratio will be hiked in stages by 1% to 4% by May 2021 in order to stabilize liquidity. From a 6-month to a 1-year horizon, this can have an effect on the returns provided by debt and liquid funds.

Conclusion

Predominantly, investing in secure and risk-free instruments. But the debt market situation has improved a lot post the pandemic induced liquidity crisis. But when you understand the risk on every instrument and analyze your risk appetite, you can achieve your financial objective involved with mutual funds.

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Investment in securities market are subject to market risks, read all the related documents carefully before investing. Please read the Risk Disclosure documents carefully before investing in Equity Shares, Derivatives, Mutual fund, and/or other instruments traded on the Stock Exchanges. As investments are subject to market risks and price fluctuation risk, there is no assurance or guarantee that the investment objectives shall be achieved. NBT do not guarantee any assured returns on any investments. Past performance of securities/instruments is not indicative of their future performance.