There is a tide in the affairs of men, which, taken at the flood, leads on to fortune

These words, spoken by Brutus in Shakespeare’s Julius Caesar, captures what Union Budget 2020 probably wants you to do: seize the fineprint, tweak your investment strategy and choose efficient alternatives.

For the record, the finance minister has attempted to achieve what she has vigorously described as “simplification of taxation”, courtesy a structure that will be relatively free of clutter (that is, shorn of the extant range of exemptions and deductions). As a result, income tax rates will stand reduced for those who give up such benefits.

ELSS fate

That, however, leaves a prodigious question for an influential section of the market to answer: will the latest budgetary provisions wean away investors from one category of saving instruments to another?

Or, to put it more bluntly, will the average participant stay away from, say, equity-linked savings schemes? The latter are diversified equity funds that help save tax.

In all fairness, these funds enjoy a special status because of the benefit it offers to unit holders. Within its narrow confines of merely Rs 1.5 lakh, it brings even traditional investors absolutely close to market-determined returns.

In a country where guaranteed-returns are still a standard demand, where fixed income bearing options still rule the roost, the possibility of garnering market-linked performance present unique opportunities for yield-seekers.

The fact that a tax-saver has a lock-in period of only three years (after which it turns open-ended and allows investors to exit on any working day at the prevailing net asset value) adds to its uniqueness.

Rate watch

In this connection, let’s quickly recap the relevant budgetary proposals. Today an individual taxpayer is required to shell out 20 per cent if he earns Rs 5-10 lakh and 30 per cent if his income is more than Rs 10 lakh.This is set to change for the better: under the new proposed regime, the rates will be 10 per cent for income of Rs 5-7.5 lakh, 15 per cent for Rs 7.5-10 lakh, 20 per cent for Rs 10-12.5 lakh, and 25 per cent for Rs 12.5-15 lakh. Also, those who earn more than Rs 15 lakh will pay 30 per cent.

New strategy?

Investors must now decide whether they should stick to the current dispensation (with its raft of exemptions) or gravitate to the newly conceived regime (without exemptions, but with friendlier rates)? Also, should dump their ELSS plans or keep investing in them to get the best out of equities?

While each investor is free to decide what is most appropriate for him, I think staying on the old, well-trodden path will probably be a good idea for the risk taker.

ELSS, you must appreciate, is among the strongest contenders when it comes to earning maximum returns. This category of funds has tremendous potential and the investor concerned has no real cause to get out even at the end of the three-year lock in. Indeed, staying invested well after the mandatory period can make complete sense if the market remains buoyant. In other words, do not get out of your ELSS when stocks are moving north.

The real issue is whether under the new regime there will be sufficient reason for you to pick up traditional savings products instead. After all, you probably have the full Rs 1.5 lakh to spare for a genuine tax sop. Now that you have a lower tax rate to contend with, will you direct the same to, say, a three-year fixed deposit offered by a reliable lending institution?

At another level, your attention can now shift even firmly to non-ELSS alternatives in the mutual funds space. In simple words, this may be just the time to look at broadbased, open-ended equity funds that allocate to a variety of sectors. This will be especially relevant under the new exemption-free tax regime. Your money must work actively to fetch the best-possible returns; nothing less should satisfy you, now that you have decided to forego certain benefits.

Well, whether you tweak it strategically or not, your portfolio must be efficiently managed in all circumstances. At the end of the day, it must truly reflect your needs and serve you in the most optimum manner. In fact, you need to find out whether tweaking it will upset your asset allocation. Such a thing will be detrimental to your long-term interests.

Don’t abjure the professional

The FM has correctly pointed out that it is nearly impossible for an average taxpayer to comply with current legislation without the aid of a professional adviser. Yes, life for income-earners can turn quite complicated, and, yes, you do have to negotiate past a maze of exemptions and deductions in order to file your returns in the most optimum manner.

However, even under the new and simplified dispensation, I would advise individual investors to engage competent consultants to comply with the regulations without any inaccuracy. In fact, close interaction with your tax adviser is necessary at every turn; after all, compliance should be as error-free as possible.

A similar approach is necessary while choosing your investment adviser — the latter must be fully aware of your needs, liabilities, limitations, investment objectives and so on. Any gap in his knowledge will lead to wrong decisions. In other words, your asset allocation will be faulty, your portfolio will underperform and your yield from investment will not be satisfactory.

The writer is director, Wishlist Capital Advisors