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Structure your portfolio based on the goals

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IT IS time for an individual investor to take a portfolio approach to investing because looking at small niches or specific areas might not give them the correct picture. This is especially true in a situation where the various asset classes are in turmoil including equities, debt and even precious metals.


This would require that the investor takes a careful look at the overall situation and then make their investment decisions based on what their portfolio requires because this will be a better way to go about it.


Structure a portfolio:

 

The first step for every investor is to take a look at all his or her investments and then understand as to what this role is played in an overall portfolio. Most of us tend to look at an investment in isolation. So for example, there might be some equity holdings and when there is a fall in the value here then the loss might be considered in terms of the impact that will be witnessed. However, it is important to put this in context in the sense that the role of the equity investments taken together and how they stand in terms of the portfolio is important.


If this is a small part of the portfolio then the impact might not be very important. At the same time, the position in the portfolio might also give rise to a requirement to undertake some sort of future action.


Importance:

 

Once the overall portfolio position is understood then the investor will be able to look at the importance of the investment in the context of the goals that are set. If there is a specific aim for choosing a debt investment then the importance of the goal and the way in which the investment is progressing would be seen. This would give a better picture to the investor because it would indicate whether there is any need to make a change in the strategy that is being followed and when the change would be essential. This will help in controlling any panic action because then the overall situation can be evaluated and the decision can then be made depending upon the need and the way in which this would need to be tackled.

Safety:

 

 There could be an element of conservatism that creeps into the decision-making when the investor is facing or witnessing tough conditions in various investments. This would mean an aversion to risk and there has to be efforts made so that the portfolio reflects this particular situation. The investor has to first check as to what part of their portfolio meets the safety feature and this would require conservative investments that are present in debt instruments. There has to be a clear distinction of the debt investments because those that can be traded also have an extra element of risk in the form of interest rate risk. This would mean that the value of the investment would fall when the interest rates in the economy rise.

The other way to build safety is to ensure that the instruments are not traded so the amount goes into areas like fixed deposits and bonds that will be held till maturity. This ensures that all that the investor has to worry about is the interest rate that is being earned on the investment and nothing else. This is better for those who do not want any worry for their investments or having to track the investments once they have been bought. It makes a good choice for those who are extremely conservative in nature.

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Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.

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