How should I change my portfolio to lower tax after budget 2024?
A reader says, “I’m 45 and have reached 60:40 Equity: Debt portfolio. I have 15 more years of service and don’t plan to take Early retirement. My target corpus has not yet been reached. I have invested in NIfty 50 and NIfty Next 50 for equity, PPF, NPS, and gilt funds for long-term equity and debt”.“Now, looking at the taxation and my current Equity Debt allocation, is it prudent to invest my future investments in aggressive hybrid funds (as per Plumb Line) for the next 7-10 years so that I don’t have to worry about balancing the portfolio and taxation related to it”.Some of the critical aspects of budget 2024 that will affect no-so-rich investors are:Specific recommendations to the reader’s question. The short answer is no. An aggressive hybrid fund is just as risky as an equity fund. It would be a terrible mistake to abandon the cushion of fixed income and increase portfolio risk only because it entails lower taxes. Please treat aggressive hybrid funds as 100% equity funds.Please continue as usual as per your set asset allocation schedule, keeping in mind that equity allocation has to be gradually lowered well before your retirement date.Our recommended fixed-income options for long-term goals onlyPPF (tax-free)Arbitrage Mutual Funds (taxed like an equity fund, can be used goals more than 1Y away but do not expect much returns). It is more useful for shifting from equity as the goal deadline nears, especially for non-retirement goals.Parag Parikh Conservative Hybrid Fund (taxed like a debt fund)Gilt Funds, Corporate Bond Funds (taxed like a debt fund)Parag Parikh Dynamic Asset Allocation Fund (contains significant equity, not for everyone; do not use unless you have a large corpus or experience; taxed like other funds). See: Budget 2024 Capital Gains Taxation GuideWe have the following generic recommendations for all readers.Get rid of the tax-saving mode and choose the new tax regime.Equity investing is essential for long-term goals. So do not fear the higher tax. Create a proper financial plan with a clear asset allocation schedule and stick to it like a robot.Avoid share buybacks if you are into direct equity (not necessary).Just because some products (as mentioned above) are taxed favourably now, do not go overboard on them. The more types of products you have in your portfolio, the harder it becomes to manage them. There is no need for any additional goal exposure. You do not need international FOFs, etc.Do not lock up any or more of your money in NPS just because you have to pay less tax. Stay away from Corporate NPS, if You Wish to Retire ASAP!A change in taxation should never change your core strategy. We will have to accept the higher tax and move on. 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