Skip to main content

Asset Allocation – Has no secret formula

Invest In Tax Saving Mutual Funds Online

Call 0 94 8300 8300 (India)

 

 


A retired civil servant of my acquaintance called recently. An honest man, he didn't take money or favours while in service. His only major asset is his membership of a co- operative housing society. Now on the verge of 70, he is completely retired and lives in that co- op flat. It has multiplied in value and on paper, he is quite wealthy.
 

In practice, he is cash- poor and worried. His pension allows him to maintain his current life style but with little to spare. Inflation over the past three years has eroded the value of his pension and it will soon become inadequate. He is in decent health and could easily end up in poverty in extreme old age.

If he sells the flat and moves to a cheaper place, he will generate some surplus cash. He must invest the surplus intelligently to beat inflation. One of his ex- colleagues had suggested that he park some of that in equity. He has never touched stocks. This was what he wanted to discuss.

After some discussion, I told him the truth as I see it: "If you invest sensibly in the stock market, you will probably earn excellent returns over a 5- 7 year period or longer. You have to be braced to forget about the money for at least 3- 5 years. There is a small chance you will go bust. There is also asmall chance you will earn massive returns very quickly. You must be mentally prepared for those extremes. If you think youll live till 75- plus, without needing to touch the surplus funds, invest a proportion of your funds in stocks. If you dont want the stress, or the risk, invest in debt. Your money will lose value, but youll probably have enough to last out your lifespan." This is a classic problem from life cycle investing. The underlying assumptions are simple enough. Stocks are risky and volatile. But in the long run, they beat inflation and outscore other instruments. Debt is safe, but loses out to inflation in the long term.

If you start a financial portfolio early in your career and hold it through retirement and beyond, your asset allocation should change to reflect your age and risk tolerance. In the early years, the portfolio should be heavily weighted in favour of equity. This gives a better chance of getting high returns without suffering from volatility.

As you grow older, the equity component should decline and debt should play a larger role. One of the dangers for an elderly person holding a lot of equity exposure is that he or she may need to liquidate it for ready cash in the middle of a bear market. In that case, the savings may be wiped out by a temporary downturn.

The life cycle investing concept looks logical in theory. In practice, it is a messy, "fuzzy" process deciding the ideal asset allocation levels. Different people have different risk tolerances and different aspirations. One size doesn't fit all where asset allocations are concerned.

Nobody knows how long they will live and this is also important when fiddling with asset- allocation. If you switch over to debt too early, you may end up cash- poor in your last days. If you hold onto equity too long, you may be hit by emergency medical expenses and forced to accept capital losses.

Average life- expectancy tells you little about personal life expectancy. Specifics like genetic make up and lifestyle play a big role. Life expectancy statistics are skewed downwards by infant and child mortality, and because young adults are more likely to die in accidents, or violent incidents.

You may be very lucky if you started investing in 1991 or 2003 just before the market went into a long bull run. You may be unlucky as well. If you started investing in 1994, the equity returns would have disappointed until 1999. Again, there was a big bear market between 2000- 2005. Somebody intending to down shift equity allocations in that period would have had to bear losses, or defer his plans.

Techniques like systematic investment plans can reduce the negative effect of such long term trends. But they don't mitigate those effects completely. Even in the very long- run, volatility has some effect on returns and that effect may be beneficial or negative.

Life- cycle investors must also tackle a tricky set of problems when changing asset allocations. When you decide to increase or decrease equity exposure, should you do it at one shot? Or should you do it, systematically, reducing exposure a little, month by month? These are important details you must work out yourself depending on your personal risk tolerance.

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 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 )

  1. ICICI Prudential Tax Plan Invest Online
  2. HDFC TaxSaver Invest Online
  3. DSP BlackRock Tax Saver Fund Invest Online
  4. Reliance Tax Saver (ELSS) Fund Invest Online
  5. Birla Sun Life Tax Relief '96 Invest Online
  6. IDFC Tax Advantage (ELSS) Fund Invest Online
  7. SBI Magnum Tax Gain Scheme 1993 Invest Online
  8. Sundaram Tax Saver Invest Online
  9. Edelweiss ELSS Invest Online

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

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 MutualFunds 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

ULIP Review: ProGrowth Super II

  If you are interested in a death cover that's just big enough, HDFC SL ProGrowth Super II is something worth a try. The beauty is it has something for everybody — you name the risk profile, the category is right up there. But do a SWOT analysis of the basket, and the gloss fades     HDFC SL ProGrowth Super II is a type-II unit-linked insurance plan ( ULIP ). Launched in September 2010, this is a small ticket-size scheme with multiple rider options and adequate death cover. It offers five investment options (funds) — one in each category of large-cap equity, mid-cap equity, balanced, debt and money market fund. COST STRUCTURE: ProGrowth Super II is reasonably priced, with the premium allocation charge lower than most others in the category. However, the scheme's mortality charge is almost 60% that of LIC mortality table for those investing early in life. This charge reduces with age. BENEFITS: Investors can choose a sum assured between 10-40 times the annualised premium...

Am you Required to E-file Tax Return?

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   Am I Required to 'E-file' My Return? Yes, under the law you are required to e-file your return if your income for the year is Rs. 500,000 or more. Even if you are not required to e-file your return, it is advisable to do so for the following benefits: i) E-filing is environment friendly. ii) E-filing ensures certain validations before the return is filed. Therefore, e-returns are more accurate than the paper returns. iii) E-returns are processed faster than the paper returns. iv) E-filing can be done from the comfort of home/office and you do not have to stand in queue to e-file. v) E-returns can be accessed anytime from the tax department's e-filing portal. For further information contact Prajna Capit...

IDFC - Long term infrastructure bonds - Tranche 2

IDFC - Long term infrastructure bonds What are infrastructure bonds? In 2010, the government introduced a new section 80CCF under the Income Tax Act, 1961 (" Income Tax Act ") to provide for income tax deductions for subscription to long-term infrastructure bonds and pursuant to that the Central Board of Direct Taxes passed Notification No. 48/2010/F.No.149/84/2010-SO(TPL) dated July 9, 2010. These long term infrastructure bonds offer an additional window of tax deduction of investments up to Rs. 20,000 for the financial year 2010-11. This deduction is over and above the Rs 1 lakh deduction available under sections 80C, 80CCC and 80CCD read with section 80CCE of the Income Tax Act. Infrastructure bonds help in intermediating the retail investor's savings into infrastructure sector directly. Long term infrastructure Bonds by IDFC IDFC issued an earlier tranche of these long term infrastructure bonds on November 12, 2010. This is the second public issue of long-te...

Section 80CCD

Top SIP Funds Online   Income tax deduction under section 80CCD Under Income Tax, TaxPayers have the benefit of claiming several deductions. Out of the deduction avenues, Section 80CCD provides t axpayer deductions against investments made in specific sector s. Under Section 80CCD, an assessee is eligible to claim deductions against the contributions made to the National Pension Scheme or Atal Pension Yojana. Contributions made by an employer to National Pension Scheme are also eligible for deductions under the provisions of Section 80 CCD. In this article, we will take a look at the primary features of this section, the terms and conditions for claiming deductions, the eligibility to claim such deductions, and some of the commonly asked questions in this regard. There are two parts of Section 80CCD. Subsection 1 of this section refers to tax deductions for all assesses who are central government or state government employees, or self-employed or employed by any other employers. In...

Merger of Tata Indo-Global Infrastructure Fund with Tata Equity Opportunities Fund

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 Merger of Tata Indo-Global Infrastructure Fund with Tata Equity Opportunities Fund Tata Mutual Fund has decided to merge Tata Indo-Global Infrastructure Fund with Tata Equity Opportunities Fund, with effect from January 16, 2015.   Investors of Tata Indo-Global Infrastructure Fund can redeem/ switch out units from December 13, 2014 to January 12, 2015 without paying any exit load. For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call Leave a missed Call on 94 8300 8300 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 Invest Any Mutual Fund Online Download Mutual Fund Application Forms from all AMCs Download Mutual Any Fund A...
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