Assess Your Tax-Saving Progress
The deadline for the second instalment of advance tax was September 15, making this a crucial time to evaluate your tax situation for the rest of the year. If your tax liability for the year is expected to exceed ₹10,000 after TDS, you are required to pay
advance tax. By September 15, you should have paid at least 45% of your total estimated tax. This is also an ideal moment to review your Section 80C investments, which allow for deductions up to ₹1.5 lakh under the old tax regime. Check how much of this limit you have already utilised through your Employee Provident Fund (EPF), life insurance premiums, and home loan principal repayments. Rushing to invest in March often leads to poor choices. Starting a Systematic Investment Plan (SIP) in an Equity Linked Savings Scheme (ELSS) now allows you to spread your investment over the next six months, averaging out your purchase cost instead of investing a lump sum at year-end market levels.
Rebalance Your Investment Portfolio
Over six months, market movements can cause your asset allocation to drift away from your original plan. For instance, a strong run in the equity markets might increase your equity exposure from a planned 60% to 70%, silently increasing your portfolio's risk. Portfolio rebalancing is the disciplined process of selling assets that have become overweight and buying those that are underweight to restore your desired mix (e.g., 60% equity, 40% debt). This ensures your portfolio's risk level remains aligned with your financial goals and risk tolerance. Instead of selling, you can also rebalance by directing new investments, like your monthly SIPs, into the underperforming asset class. This is a more tax-efficient strategy as it avoids triggering capital gains tax. A simple annual or semi-annual review is a common and effective strategy for most investors.
Review Savings and Fixed-Income Products
While market-linked products require attention, don’t neglect your fixed-income instruments. Review the interest rates on your fixed deposits (FDs), recurring deposits (RDs), and other small savings schemes. For long-term goals, schemes like the Public Provident Fund (PPF) and Sukanya Samriddhi Yojana (SSY) offer attractive, often tax-free, compounding returns. The PPF has a 15-year tenure, while the SSY is designed for a girl child's future. It's also a good time to check the interest rates on any outstanding loans, such as home or personal loans. With shifts in the interest rate environment, refinancing could potentially lower your monthly EMIs.
Check Your Emergency Fund
An emergency fund is your first line of defence against financial shocks. Financial experts recommend maintaining a corpus equivalent to at least six to twelve months of essential living expenses. Given rising inflation, it is wise to reassess if your current emergency fund is still adequate. If your monthly expenses have increased, your emergency fund should grow proportionately. This fund should be kept in highly liquid, low-risk instruments like a high-yield savings account or a liquid mutual fund, ensuring you can access the money at a moment’s notice without having to sell your long-term investments at a potential loss.
Re-evaluate Progress Towards Financial Goals
Finally, use this mid-year review to check if you are on track to meet your major financial goals, whether it’s saving for retirement, a child's education, or a down payment on a house. Are your investments generating the expected returns? Do you need to increase your monthly investment amount to stay on course? Life events like a salary increase or a change in family circumstances might necessitate a change in your financial plan. This halfway point provides a calm window to make necessary adjustments, ensuring your financial plan remains relevant and effective for the journey ahead.
