If you are an investor in India there are many people around you saying ‘How prepared are you for the budget’. If you are a Real Long Time Investor you should listen to Ayn Rand – and just ‘shrug’. I agree it is very difficult to remain indifferent. Your simple morning newspaper, television channels, websites all are in a hurry to tell you the following:

What is likely to happen, what industry wants, what the housewife wants, why gas prices will go up, cigarettes will now be doomed….etc. etc.

The budget is an activity which has no meaning at all for a retail investor. The budget is a document which says how much the government is expected to earn, borrow, lend, spend, save, and how the economy is LIKELY to take shape. It is just a hope document which may not mean anything for you! And at the end of the year you have a Finance Minister telling you why nothing of that happened. Or did not happen as he said it would.

As an investor you could be investing in bank fixed deposits, bonds, mutual funds (all varieties) , equity, land and gold. In your investing life which could range from 20 years to say 90 years, what impact can ONE budget have? zilch. Nothing at all.

Now come to 2014 India. If you were an equity investor, you are in the MECCA OF TAXATION. No capital gains tax, no dividend tax, no wealth tax, – what more can you want? A well developed market, a fantastic back end, guaranteed trades. You can sell shares worth a few million dollars and get the money credited into your account in 48 hours. No hassles, fully safe, no counter party risk,  completely tax free. You can only pray that the Finance Minister does not do anything which upsets this equation.

Now the stupidest thing that an investor can do is to REACT to the budget. Let us assume one provision said (it did in 2014) ‘the government will encourage drip irrigation all over the country’. You rush to buy Jain Irrigation which has already shot up 10%. You feel happy with that till you see the prices of Jain Irrigation drop over the next 3 days.  After one full year, the share may have done NOTHING, and you would have been much better off in your mutual fund, where the fund manager may have taken a calmer call!

 

Why? Simply because the people who knew this would happen had already ‘bought on rumors and SOLD on news’. So reacting to the budget, well does not help the retail investor much. Might as well wait and take a calmer decision.

You think the investor learnt his lesson in 2015? NO. He will continue to be excited by the budget. Arun Jaitely will say “We understand the need for Infrastructure, ..so the retail investor will go and invest in either Infrastructure funds or a few infrastructure shares currently quoting below Rs. 10.

Time alone will tell you whether you were smart of not. The probability of you making money on that transaction is also quite low. And it is only after a year will you be able to judge whether your decision is right or wrong.

If you are a Gold investor, we both know that we are a gold hungry country and the recent track record is so good that people will continuously buy gold. There is Wealth tax on gold, SHORT TERM capital gains for gold UNLESS it is held for 3 years. After 3 years it still attracts LONG TERM capital gains. You will still buy gold because your wife said so…or for whatever reasons. So how does a national budget help you? Nothing.

If you are a bank depositor, chances are the bank transactions will be left untouched – but even if he were to tinker it could only be to improve the post tax return for the investor. Really nothing to look forward to as an investor / depositor.

Real Estate – another asset class which you buy, hold or sell depending on your own use requirement or friend’s advise! These are really long term decisions and one or 2 budgets do not really make / mar your decisions.

So as an investor if you sleep through the budget and woke up two days late, do you think it will matter? The answer is NO.

Instead of seeing what Arun Jaitely is doing with the country’s money (rather what he is promising) YOU should concentrate on YOUR own budget. Your asset allocation, your income and expenditure, your balance sheet, your goals.

That friends will give you a far superior RoT. Return on Time spent.

 

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  1. After a very long time an interesting post Mr. Subra. Unlike your so many other recent past ones, this was interesting read. It didn’t have too much to take away as always but you had spend sometime thinking to make it interesting. Thanks

  2. Excellent timing! News channels are one of the major reasons for creating all the hype & excitement among the investors… also, there is feeling that active investing involves changing portfolio constantly based on the latest news. this article can act as a control measure against such actions..

  3. Subra – Is there a reason why you do not post articles on all days? I thought you write one every day (maybe my observation is incorrect…)

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