Skip to main content

Portfolio Basics

An increasingly common and rather disturbing trend in many investments is the absence of a solid 'core' portfolio.

In recent times, we have met several investors (most were new to investing in mutual funds) whose investment portfolios were constituted of only thematic and sectoral funds. To further complicate matters, these investments were made in new fund offers launched at a time when markets were surging northwards. Expectedly, such portfolios are in dire straits at present.

What is “The core portfolio”

By the core portfolio, we are referring to a mix of investment avenues that is capable of delivering an enduring performance across market cycles.

For instance, in the mutual funds segment, well-managed diversified equity funds, balanced funds and monthly income plans with proven track records could form the core portfolio. Of course, the investor's risk profile and investment objectives would play a part in determining the core.

Once this core is in place, the investor can consider (if at all) allocating a smaller portion of his investible surplus in ancillary offerings like thematic/sectoral funds and global/international funds. However, given that the reverse seems to be the order of the day, it is certainly a cause for concern.

So what causes this imbalance?

There are several reasons. In rising markets, investors can and do succumb to the unwarranted hype accompanying certain investment avenues. Fund houses and mutual fund distributors do their bit to convince investors of the merits of every offering ranging from infrastructure funds, funds investing in global markets to those investing in commodity stocks.

Of course, the downside risk of such an investment and/or its precise allocation in the investor's portfolio rarely features in the sales pitch.

Investors need to share some blame as well. For some inexplicable reason, several investors have a fascination for 'new' offerings. Investors are willing to get invested in an offering simply because it is new and its investment proposition seems innovative. Aspects like the avenue's aptness or its ability to add value to the portfolio are conveniently ignored.

Finally, the single largest factor responsible for this phenomenon is that investments are made in a haphazard manner. The recommended method for investing entails first defining the investment objectives and then drawing up investment plans that can aid investors achieve the stated objectives.

However, it is not uncommon for investors to skip the first step (i.e. defining the objectives) and get invested in an adhoc manner. This is akin to starting off on a journey without a roadmap. The results aren't hard to guess.

What investors should do?

For starters, investors must appreciate that investing is all about achieving certain goals. Hence, there is no place for things like 'fascination for new' while investing. The key is to have in place a strong core that will be resilient in testing times and yet enable the investor achieve his goals over the stipulated investment horizon.

An investment advisor/financial planner can play a vital role in building the core portfolio. Beyond this, subject to the investor's risk profile and availability of surplus monies, smaller allocations can be made to avenues that can provide a fillip to the portfolio.

However, while doing the same, the higher risk involved shouldn't be ignored.

Popular posts from this blog

What is Electronic Clearing Service (ECS)?

  As the name suggests, it's an electronic process through which money can be transferred from one bank account to another. According to RBI, this mode is usually used for regular payments and receipts, like distribution of dividend, interest, salary, pension etc. This mode is also used for collection of bills for telephone, electricity, water, various types of taxes, payment of EMIs , investments in mutual funds , payment of insurance premium etc. There are two types of ECS , like most other banking transactions, ECS credit and ECS debit. An ECS credit is used by a bank account holder , usually a large company or an institution for services like payment of dividend, in terest, salary, pension etc. If your mutual fund pays you dividend to your bank account, of all probability it is being paid through ECS credit.ECS debit, on the other hand, is used when a company or an institution is getting money from a large number of people. For example if you are investing in a mutual fund sc...

WEALTH TAX

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300 WEALTH TAX   WHAT CONSTITUTES WEALTH? For wealth tax purposes, "wealth" means property , urban land, car, jewellery , yacht, boat, aircraft and cash in hand in excess of Rs 50,000. CAUTION POINT | Do not think you will have an easy escape from wealth tax by transferring your `wealth' without consideration to your spouse or minor child. Such assets will also be considered as your wealth. HOW TO DETERMINE YOUR TAXABLE WEALTH Add the taxable value of the above assets (computed as per the detailed rules for valuation) owned by you as on March 31 (for FY 2014-15, it will be March 31, 2015). In case you sold your car during the year, it will not be taxable wealth. Deduct loans if any obtained by you to acquire any of the taxable assets from the value of gross tax out for at least 300 days in a...

Equity Savings Fund

Invest Equity Savings Fund Online   The best part about these funds is that they are subject to equity fund taxation and at the same time are structured like MIP like funds . This new category, equity savings funds , offer a little of everything. They allocate money to equities & equity related instruments, and fixed income. They aim to generate returns by diversification. Such funds invest in fixed income and arbitrage to protect the investors from short term volatility and equity for capital gains. The best part of these funds is that they are subject to equity fund taxation and at the same time are structured like MIP funds.   MIP funds however are subject to debt fund taxation. Investors Equity savings funds are suitable for the following: First time investors who seek partial exposure to equity with less volatility and greater stability Investors seeking moderate capital appreciation with relatively lower risk Those wh...

How to Pick Top Performing Mutual Fund Schemes

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   How to Pick Performing Schemes  Funds that continue to stay in the top grade of performance over longer periods are the ones to bet on, advise investment experts   The mutual fund performance charts of the past few months make for an impressive reading. Funds across all categories boast of stellar returns. Sample this: The mid and small cap category has averaged 77 percent return over the past 12 months, with the best fund delivering a staggering 120 percent. The tax-saving funds also average an impressive 51 percent, including a fund which has soared 92 percent. Many of the table-toppers are funds of proven quality and track record. However, there are also schemes that are not that well-known. Some of these have rarely made it to the performance charts in the past, yet, of late, they bo...

8% Government of India Bonds quick guide

For those seeking comfort in safety of returns, the Government of India issued 8% savings bond once again comes to the fore. First launched in 2003, these bonds are issued by the government with a maturity of 6 years. The bonds are available at all times with specified distributors through whom you can apply to invest in them. Here is a quick guide to what the bond offers and its features to ascertain to check for suitability. What are Government of India bonds Government of India bonds are like any other government bonds with specified rate of interest. The rate is fixed at 8% per annum paid half yearly, or you can opt for cumulative payment of interest at the end of the tenure. You can buy these bonds from State Bank of India and its associates, other nationalized banks and some private sector banks such as HDFC Bank Ltd and ICICI Bank Ltd, among others. The bonds can be bought from the offices of Stock Holding Corporation of India as well. They are available in physical form onl...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now