What long term investors should do on a Budget Day: Go to sleep and wake up after two days :-)
If this headline sounds absolutely ridiculous to you, you absolutely MUST read this article. :-)
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'.
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!
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 are 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, 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.
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Let us assume one provision says 'the government will encourage drip irrigation all over the country'. You rush to buy Jain Irrigation which has already shot up 10 per cent. You feel happy with that till you see the prices of Jain Irrigation drop over the next 3 days.
Simply because the people who knew this would happen had already 'bought on rumours 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.
If you are a gold investor, we all 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 the finance minister 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 is 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 later, 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. :-)
Photographs: Uttam Ghosh/Rediff.com