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

Rs 14,000 Crore worth of tax free bonds coming soon from NHAI , PFC

  NHAI, PFC file prospectuses, coupon rate not yet decided MORE debt investment options have opened up for investors with AAA rated tax-free bonds worth over Rs 14,000 crore lined up. The National Highway Authority of India ( NHAI ) and Power Finance Corporation ( PFC ) are offering Rs 10,000 crore and Rs 4,033.13 crore worth of tax-free bonds, respectively, as per prospectuses filed with the Securities and Exchange Board of India (Sebi). Of a Rs 5,000 crore issue by PFC, Rs 966.87 crore has already been raised through private placement on September 28 and November 1. Tax-free bonds give investors tax-free return on any amount invested. In another kind of bonds, the long-term infrastructure bonds, investments up to Rs 20,000 are tax exempt, that is this cap amount can be deducted from the taxable income. Accordingly, the NHAI prospectus has clarified that only the amount of interest from -and not the actual investment on -its new bonds will be tax-free. "NHAI's publ...
Read more

Change in Fund Manager for some of HSBC Mutual Fund Schemes

Buy Gold Mutual Funds Invest Mutual Funds Online Download Mutual Fund Application Forms Call 0 94 8300 8300 (India) However, this facility is only available to Unit holders who have been assigned a folio number by the AMC.   HSBC Mutual Fund has announced that the below mentioned schemes shall be managed by the new fund managers as stated in the table. The effective date will be July 02, 2012.   Amaresh Mishra 's will be Vice President and Assistant Fund Manager. Having done a Post graduate diploma in Business Management and Bachelor of Chemical Engineering, he has over seven years of experience in Equities and Sales.   Mr. Piyush Harlalka's designation shall be Vice President- Fixed Income. Qualified as a C.A., C.S. and holding M.B.A.( Finance degree), he has over six years of experience in Fund management and ...
Read more

How EEE and EET Tax affect Retirement Investments

  An important factor while choosing a financial product is its taxation , and for retirement savings, this is even more important as the sums involved are usually life-long savings. Here's a look at the current tax treatment of three major long-term retirement planning products, which are - Employees' Provident Fund (EPF), Public Provident Fund (PPF) and National Pension System (NPS). EPF The tax treatment is EEE, which means your money is exempt from taxes at the time of investment, accumulation and withdrawal. At the time of investment, the tax deduction is under the limit of section 80C of the Income-tax Act , which is currently Rs 1.5 lakh. Partial withdrawals are also tax-free if made after 5 years of continuous service. If withdrawals are made before 5 years of service, 10% tax will be deducted at source. Exceptions have also been provided for transfer of amount and conditions wherein the subscriber is unemployed for more than 2 months or the loss of job was beyond th...
Read more

Personal Finance: You can insure your wedding

But luck may not always be on your side. With the frequency of such attacks, as also other risks and unforeseen accidents growing, a wedding insurance is something you may want to look at if a marriage is being planned in the family. Event insurance plans like this is still in its nascent stages due to low awareness. And given the sacred nature of the ritual, nobody wants to discuss or think negative. But as wedding spends and risks grow, it makes sense to cover the potential monetary loss. The policy in those countries even covers the loss of the wedding ring, the wedding gown not reaching on time and even the expenses/loss due to late or non-appearance of the photographer which may mean staging the event once again for the photograph. In India, most insurance companies — including ICICI Lombard General Insurance, Oriental Insurance, Bajaj Allianz and National Insurance — offer wedding insurance. The policy is tailor made to individual requirements and needs. The sum insur...
Read more

DSP BlackRock MidCap Fund

Best SIP Funds Online   HOW HAS DSP BlackRock Small & Mid Cap Fund PERFORMED? With a 10-year return of 14.61%, the fund has outperformed both the category average (12.34%) and the benchmark (10%) by a good margin. Should you invest in DSP BlackRock Small & Mid Cap Fund? This fund invests predominantly in mid-cap stocks but takes a sizeable exposure in small-caps as well. The focus is on nascent companies with high growth potential. The fund manager places emphasis on quality and avoids inferior businesses even if these look tempting from a valuation perspective. Over the past year, the fund portfolio has grown, having added to some of the underperforming sectors like chemicals and healthcare. Its portfolio churn has come down significantly. The heavily diversified portfolio is run completely agnostic of its benchmark index— most bets are from outside the index—which can at times lead to bouts of underperformance as seen in the recent years....
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