Skip to main content

Adjust portfolio if allocation to have right asset allocation strategy

Invest Mutual Funds Online

Call 0 94 8300 8300 (India)


   The stock market index belied investor expectations last financial year as predominantly global concerns stained its performance. Adding to the woes were scams that weaned the faith of foreign institutional investors (FIIs). Fund managers and investors panicked, and succumbed to selling pressures with concerns over the unrest in Egypt.


   Rising food prices and inflation have left small investors with little surplus for investments. Increase in home loan rates has increased the financial burden on homeowners. These additional factors have compounded to volatility in the stock markets. Is it time to shuffle your portfolio?

Don't shuffle for short-term gains    

Shuffling is also referred to as rebalancing. Rebalancing is periodic adjustment of a portfolio to restore the original asset allocation mix. If your investment strategy or risk threshold has changed, you can rebalance your investments so that the asset classes in the portfolio align with your new asset allocation plan.


   Do not indulge in shuffling your portfolio for short-term market changes. Rebalancing is a well planned quarterly or annual activity. It helps you book profits within your portfolio effectively and reduces risk exposure by maintaining the primary asset allocation.


   A booming market provides excellent opportunity to make profits. Consequently, the equity exposure in your portfolio increases phenomenally. This makes the percentage of debt investments lesser as compared to the original debt allocation. An investor is usually driven by the desire to reap greater yields in upward-bound equity markets.

Benefits of rebalancing    

It requires considerable effort and strategy to reap good returns in a falling market. Anyone can make it rich in a bull run but not in a downward-bound index. Investors usually stay away from equity markets in choppy conditions. Despite the market condition, an investor must re-align his portfolio of investments that have strayed away from the original asset allocation strategy periodically.


   There are numerous benefits from this exercise. Rebalancing helps your portfolio remain at your risk tolerance level. An asset allocation strategy is chalked out based on your age, risk appetite, financial goals, investment objectives, savings, debts, income flow and years left before retirement. The portfolio could become conservative or risky based on fluctuations in the stock markets. Rebalancing restores the portfolio to the original asset allocation plan to meet your goals.

CASE STUDY

Maheshwar has received a bonus of Rs 2 lakhs and wants to invest. Being a person with a moderate risk appetite, he prefers an asset allocation mix of 60 percent in debt and 40 percent in equity. He locks Rs 1.20 lakhs (60 percent of Rs 2 lakhs) in banks deposits, post office monthly income schemes and fixed maturity plans (FMPs). The remaining Rs 80,000 (40 percent of Rs 2 lakhs) is invested in stocks.


   After a year, Maheshwar discovers that the value of stocks in his portfolio has gone up by 40 percent and has become Rs 1.12 lakhs. On the other hand, his investments in debt have become Rs 1.32 lakhs (at 10 percent returns).


   He must rebalance his portfolio to get back to the original asset allocation mix of 60 percent debt and 40 percent equity. In line with his risk appetite, he sells some shares and reinvests in debt instruments that he is more comfortable with. Currently, his total investments are valued at Rs 1.12 lakhs plus Rs 1.32 lakhs, i.e., Rs 2.44 lakhs. At the end of the rebalancing exercise, he must have 40 percent of Rs 2.44 lakhs in stocks and the remaining locked in debt.

Happy Investing!!

We can help. Call 0 94 8300 8300 (India)

Leave your comment with mail ID and we will answer them

OR

You can write back to us at PrajnaCapital [at] Gmail [dot] Com

 

---------------------------------------------

Invest Mutual Funds Online

Transact Mutual Fund Online

Download Mutual Fund Application Forms from all AMCs

Download Mutual Fund Application Forms

Best Performing Mutual Funds

    1. Largecap Funds Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Birla Sun Life Front Line Equity Fund
    2. Large and Midcap Funds Invest Online

      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
    1. Mid and SmallCap Funds Invest Online

      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
    1. Small and MicroCap Funds Invest Online

      1. DSP BlackRock MicroCap Fund
    1. Sector Funds Invest Online

      1. Reliance Banking Fund
      2. Reliance Banking Fund
    1. Tax Saver Mutual  Funds  Invest Online
      1. ICICI Prudential Tax Plan
      2. HDFC Taxsaver
      3. DSP BlackRock Tax Saver Fund
      4. Reliance Tax Saver (ELSS) Fund
    2. Gold Mutual Funds Invest Online

      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund

 

 

Popular posts from this blog

Mutual Fund Exit Load Changes

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 Mutual Fund Exit Load Changes AMCs don't communicate about any change in exit load directly with investors, but do update on their website   The exit load applicable to your investments is the load which existed at the time when you invested in the particular fund. Any subsequent changes in the exit load will not be applicable to your investments.   However, Asset Management Companies ( AMCs ) periodically publish addendums in the newspapers, which state any change in exit loads of specific schemes managed by them. Such changes are also posted on their websites. However, a direct communication to an investor is not made, considering the costs involved in doing so. In their own interests, investors should not only track the performance of the funds they i...
Read more

Birla Sun Life Mutual Fund Launches Birla Sun Life NIFTY ETF

Birla Sun Life has launched a new fund namely, Birla Sun Life Nifty ETF, an open ended exchange traded fund. The new fund will be open for subscription from 4th July to 18th July 2011, at an offer price of Rs 10 per unit. The investment objective of the scheme is to generate returns that closely correspond to the total returns of securities as represented by S&P CNX Nifty, subject to tracking errors. No exit load will be charged under the scheme. The performance of the scheme will be benchmarked against S&P CNX Nifty and will be managed by Satyabrata Mohanty.   -----------------------------------------------------------------   Also, know how to buy mutual funds online:   1) DSP BlackRock Mutual Funds: http://prajnacapital.blogspot.com/2011/05/buying-dsp-blackrock-mutual-funds.html   2) Reliance Mutual Funds: http://prajnacapital.blogspot.com/2011/06/buying-reliance-mutual-funds-online.html   3) Birla Sunlife Mutual Funds: http://prajnacapital.blogspot.com/2011/...
Read more

Atal Pension Yojana contribution Tax Benefit for spouse

Contributions to Atal Pension Yojana (APY) are eligible for the same tax benefits as the NPS. This means that the contributions can be claimed under Section 80CCD (1B). The current limit for Section 80CCD (1B) is   Rs   50,000, over and above the   Rs   1.5 lakh limit under Section 80C. Section 80 CCD (1) is a different one, meant to cover employers' contribution towards NPS . You cannot get tax benefit by investing in the name of your spouse under Section 80 CCD . ------------------------------ ----------------- 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 Saver 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. Religare Tax Plan 4. DSP BlackRock Tax Saver Fund 5. Franklin India TaxShield 6. ICICI Prudential Long Term Equity Fund 7. IDFC Tax Advantage (ELSS) Fund 8. Birla Sun Life Tax Relief 96 9. ...
Read more

Mutual Fund Reivew: Birla Sun Life Asset Allocation Conservative

Birla Sun Life Asset Allocation Conservative has numbers on its side to prove its credibility… Don't be surprised to find this Fund of Funds ( FoF ) in our recommendations. It has earned its place. And despite the difference in the structure of the product, there is no arguing with the numbers.   Of the total 6 years of its existence, the fund has been among the top 10 funds in its category in four of them. Last year it put up an average show and the only year it underperformed its peers was in 2008.   One aspect to look at when investing in an FoF is the expense ratio. The expense ratio of an FoF is capped at a lower limit of 0.75 per cent (2.50% for an actively managed fund). However, the FoF not only has its own expense (though lower) but even the expense ratio of the fund it is investing into. Fortunately, the fund manager takes that into account. "Expense is one of the important criteria used for fund selection and is the main reason for our investment in BSL Ind...
Read more

Short-Term Investment Options in Mutual Funds

Mutual funds offer liquid funds and ultra short term funds in the debt category, which are suitable for short investment periods. Ultra short-term funds were earlier known as liquid plus funds. Liquid funds invest in money market instruments with a maturity of 91 days or less. However, there are no such restrictions for ultra short-term funds. Who should invest in these? These are open-ended schemes. Investors with a short investment horizon or with surplus cash and low risk appetite should look at these. These could include corporate as well as retail investors. Those interested in staying invested for less than 15 days can opt for liquid funds. Retail investors who want to remain invested for two-four months, can look at ultra short-term funds. The short duration for both liquid and ultra short-term funds shields them from any interest rate volatility.   What kind of returns do they offer? In terms of an investment period less than 15 days, these funds are comparable to a ba...
Read more
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