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Portfolio Building – Thumb Rules

Now that we know about your portfolio, here are a few pointers about what you should be doing...


  • Small allocations would not add any value to the overall portfolio. If a fund outperforms but has a meager allocation, the portfolio would not benefit from it. Make sure you allocate a significant part of the portfolio to a stock or a fund.

  • Avoid speculating and stick to funds that have proved their mettle. Invest in well rated funds. Look at a 3-5 years performance history and ratings before investing.

  • Quality is more important than quantity. Investing and managing so many funds can become a tedious task.

  • Invest in fewer funds and do not get lured to the new fund offerings. Add a new fund to your portfolio only if it adds a unique diversification.

  • Some significant component of debt is always helpful to a portfolio. Debt plays a major role in a bearish stock market and provides the cushion when markets tank.

  • Ensure that the portfolio has a healthy debt component irrespective of the risk that you can handle. You can also invest in government debt instruments like bonds, fixed deposits or NSCs, but they are not tax efficient.

  • Once you are done with the equity debt allocation, make sure you re-check the allocation and re-balance the portfolio (if required) at least once a year. This should also be done when stock markets crash or rise rapidly in a small interval.

  • Being regular is the key. It is not possible to time the markets, nor should one try to do so. Be regular and systematic. Even if you prefer doing one time investment at times, you should also have SIPs to complement those.

  • The SIP approach can also be adopted in stocks (of course it is not as simple as a mutual fund SIP). If you consistently buy a stock on a regular basis, it would help you average the cost over time. Make sure you do enough research before choosing a stock or consult an expert.

  • Set a ceiling on exposure to a particular sector or stock/fund. High exposure would make the portfolio largely dependent on its performance.

  • Do not track your mutual fund portfolio every day. Tracking funds' portfolio once in six months should suffice.

  • Do not worry about short term fluctuations. Market sentiments can change overnight. If you are a long term investor you should not worry about the market gyrations

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