Why you shouldn't bank on Budget 2020 to plan your investments

Preparing for specific events is the worst way of planning one’s investments, more so the Union Budget. There’s a lot in investing that you cannot control. Instead of worrying, savers should focus on what is in their own hands.

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All that is left for the Budget now is personal income tax and capital gains tax.
By Dhirendra Kumar

The Union Budget for 2020-21 is on its way and there is equal parts of excitement and dread among the investors. Expectations are high that Ms Nirmala Sitharaman will pull some sort of a rabbit out of her hat and make some big, bold moves to restore confidence in the economy. On the other hand, there are those who are afraid that she will not. At the same time, some people are scared that the moves might be too big, too bold and too disruptive. So that adds up to three separate possibilities.

At this point, if I were to follow the script of investment analysts writing ahead of the Budget, I would tell you which of the three is my prediction and how you should make investing choices to prepare yourself for it. However, preparing for specific events is the worst way of planning one’s investments, more so the Union Budget. Despite the hype, the Budget’s importance as an economic tool is at an all-time low. Very little of consequence now is left in the Budget.


With the coming of GST, indirect tax is entirely out of the Budget’s ambit. All changes are made by the GST Council that meets every month. Rates, rules, procedures– everything has been changing through the year. As the GST settles down, these changes are becoming less frequent but they have nothing to do with the Budget. Last year, the government showed that if needed, direct taxes too could be fixed at any point during the year when the biggest change in the corporate taxes for decades was made in August. All that is left for the Budget now is personal income tax and capital gains tax. These are extremely important but just two out of the many things that used to happen in the Budget.

There are many other things that could happen in the world that may impact your investments. The events, as well as their impact is unpredictable. Moreover, it’s almost a certainty that the first impression of the impact will be very different from what will actually happen. So what should an investor do?

Perhaps, then, it may be better for investors to focus more on what they can control. You have control over when you invest, what you invest in, what price you invest at. You can control whether you invest it in a great excitement in some bubble, or you invest it gradually and systematically. You also have complete control over the money you are going to invest. How important is that amount in the general scheme of your finances? How long can you invest it for? Will you need it suddenly, or is it for a planned expenditure.? How stable are the rest of your finances?

That is the stuff which you are in control of, or you have real information about. The veracity of the information and understanding you have over your own finances is (or should be) of a very high quality, a whole lot higher than that of your information about the impact of the Budget, or political events, or the US trade war with China, or the apparent demise of the auto industry, or the RBI’s actions on interest rates or anything else.

This is a form of ‘control bias’, which I’ve written elsewhere about. People worry too much about what they don’t have control over, but not enough about what they do have control over. The classic example is that of the fear of flying vis-a-vis the overconfidence of driving. As we don’t know what’s going on in the flight deck, we worry a lot. However, when we drive ourselves, we don’t worry enough. We don’t bother to drive carefully, and take needless risks. At the end of the day, the outcome is far more dependent on what we can control rather than what we cannot, and that’s what we need to focus on.

How much we save, how much we invest, what we invest in–these choices will have a far greater impact on whether we achieve our financial goals than external factors.


(The author is CEO, Value Research)
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(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
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