Skip to main content

Ideal or Optimal portfolio

Determining if a portfolio is efficient or optimal is subjective. What is good for one investor may not be so for another. An ideal portfolio depends on a persons risk appetite, cash flow requirement, goals, and the investments liquidity and tax efficiency.

Asset allocation: The first step is to decide allocation between asset classes. The demarcation depends on the risk tolerance and time horizon of the goal.

Risk tolerance is willingness to risk losing some or all your money, in exchange for higher potential returns. For example, someone starting out should look at balanced funds or exchange-traded funds. When the investor understands the risk-return associated with equity and debt, he or she could increase or decrease exposure to the asset class.

Asset allocation works only if the investor shifts the gain from one to the other, to maintain the balance.

Investment horizon: Your asset allocation also depends on the tenure of the goal. If you are young and saving for retirement, you can keep higher exposure to equity in the kitty. On the other hand, if you are saving for buying a car in three years, keep the money primarily in debt.

If you have a financial goal with timelines attached like child education, marriage, and so on, it is best to keep money in debt. For longer tenure goals, one can look at equity - the longer the goal, higher the equity exposure. Once three years away from the goal, keep shifting the equity investment to debt. This will help cut the volatility associated with equity.

Building the portfolio: Evaluate the investments you prefer. For a young person, the portfolio can have a mix of stocks, bonds, mutual funds, Public Provident Fund (PPF) and bank fixed deposits. The mix can be tilted more towards stocks or equity-oriented mutual funds.

When investing in stocks directly, do keep some dividend-paying ones. They will help you earn, even if the overall market sentiment may not support growth of the stock for a certain period.

Always go for cheaper investment options. Suppose you want to invest in equity. Most brokers offer lower brokerage cost for online investment as compared to offline. Similarly, in case of mutual funds, though there is no entry load, for some schemes the fund houses charge exit load if you redeem investment before a stipulated time, say six months or a year.

Monitor your assets at regular intervals. You can then evaluate if your investment decision was okay or needs more evaluation.

Look at the tax angle, too. Returns from some investments such as PPF, tax-free bonds and dividend from stocks/mutual funds are exempt from tax.

Optimising the portfolio: An optimal portfolio should have investments youre comfortable with and match your goals tenure. Many investors find this would mean a range of investment options. For example, some consider an optimal strategy to be inclusion of a mixture of stocks, with low, medium and high rates of volatility, several bond issues and a commodity or two. When one type of investment experiences some downturn, the other types provide stability to the portfolio.

Portfolio rebalancing: At times, you don't want to rebalance too often, as you'll have to deal with transaction cost and taxes. It's recommended you rebalance your portfolio at least once a year. Instead of rebalancing based on time, it is better to do so when there is sizeable deviation in the portfolio allocation matrix.

Another strategy that you can use to balance portfolio is to adjust in a gradual manner your portfolio using new funds to buy more of the underperforming assets. This technique may not be adequate for a larger portfolio.

Tax impact: Some strategies to consider on taxes include investing in tax sheltered investments such as PPF, tax free bonds and insurance. These help to minimise capital gains tax liabilities and make use of indexation benefits. Suppose you invest in PPF: your actual yield, computed pre-tax, is around 11.4 per cent for a person in the 30 per cent tax bracket.

Stick to asset allocation, use tax-efficient instruments and invest in line with risk profile

Popular posts from this blog

Axis Mutual Fund NFO - Axis Fixed Term Plan Series 18

Axis MF has announced that the NFO period of Axis Fixed Term Plan Series 18 (15 Months) under Axis Fixed Term Plan Series 17 19 has been preponded from February 27 to February 24.        --------------------------------------------- Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.   Invest Tax Saving Mutual Funds Online Tax Saving Mutual Funds Online These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)   Download Tax Saving Mutual Fund Application Forms from all AMCs Download Tax Saving Mutual Fund Applications   These Application Forms can be used for buying regular mutual funds also   Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds ) HDFC TaxSaver ICICI Prudential Tax Plan DSP BlackRock Tax Saver Fund Birla Sun Life Tax Relief '96 Reliance Tax Saver (ELSS) Fund IDFC Tax Advantage (ELSS) Fund SBI Magnum Tax Gain Schem...

Budget 2014 Highlights for Saving

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   The new finance minister Arun Jaitley has just presented his first budget. What measures does the budget contain that will specifically impact savers and investors? Here they are: 1. Housing loans exemption for self-occupied properties increased to Rs2 lakh: Earlier this amount was Rs1.5 lakhs. This move barely keeps pace with the inflation in asset values.   2. Investment limit under 80 (C) increased to Rs1.5 lakh: This is a good move again and offers some relief to taxpayers.   3. IT exemption increased to Rs2.5 lakh, Rs3 lakh for senior citizens. This comes as a minor relief for taxpayers.   4. Annual PPF ceiling to be enhanced to Rs1.5 lakh, from Rs1 lakh: This is in tune with the change in 80C.   5. Long term capital gains tax for debt funds has been rai...

Franklin India Taxshield

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India)   This fund maintains a quality portfolio of large-cap orientation. The fund manager adheres to a bottom-up investment approach and looks for companies whose current market price does not reflect future growth prospects. Investments are in companies that can drive future earnings growth. Stocks are selected based on the company's financial strength, management's expertise, growth potential within the industry, and the industry's growth potential.   The portfolio is well-diversified across sectors and market capitalisation and follows a blend of value and growth style of investing. The fund follows a predominantly large-cap allocation of over 70 per cent, with small-cap allocation never exceeding 10 per cent since inception.   Performance The fund doesn't dev...

ELSS Funds for different Risk Profile

Match your Goals Risk Profile With ELSS Investment   DIFFERENT TRACKS Unlike funds with a clearly defined investment universe -- large-cap, mid-cap or multi-cap - Tax Saving Schemes do not specify investment focus If you are looking for an equity Linked Savings Scheme (ELSS) to pare your tax burden, the plethora of options may confuse you. Many investors simply opt for ELSS funds , also called tax saving schemes with the best return over a certain time period. However, this may not yield the best results. There are several types of ELSS funds and it requires a nuanced approach to pick the right one. DIFFERENT RISK PROFILES Unlike funds with a clearly defined investment universe -- large-cap, midcap or even multi-cap schemes in the ELSS category do not specify their investment focus. While these schemes have the flexibility to invest anywhere, most tend to follow a defined template. For instance, some funds take a distinct large-cap tilt with a limited exposure to mid or small-cap st...

Reliance Tax Saver Fund Online

Invest in Reliance Tax Saver Fund Online   ----------------------------------------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds Top 10 Tax Saving Mutual Funds to invest in India for 2016 Best 10 ELSS Mutual Funds in india for 2016 1. BNP Paribas Long Term Equity Fund 2. Axis Tax Saver Fund 3. Franklin India TaxShield 4. ICICI Prudential Long Term Equity Fund 5. IDFC Tax Advantage (ELSS) Fund 6. Birla Sun Life Tax Relief 96 7. DSP BlackRock Tax Saver Fund 8. Reliance Tax Saver (ELSS) Fund 9. Religare Tax Plan 10. Birla Sun Life Tax Plan Invest in Best Performing 2016 Tax Saver Mutual Funds Online Invest Online Download Application Forms For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call --------------------------------------------- Leave your comment with mail ID and we will answer them OR You can write to us at PrajnaCapital [at] Gmail [dot] Com OR Leave a mis...
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