Skip to main content

Budget 2014 - Rebalance your Equity Portfolio and Debt Investments

 

Budget 2014 - Rebalance your Equity Portfolio and Debt Investments

There are many investors who put the entire 1 lakh limit of the Public Provident Fund ( PPF) in April itself because it helps them earn the entire interest income of 8.7 per cent a year. Many financial planners received calls on the Union Budget day from clients wondering if they should immediately put the additional 50,000 limit that Finance Minister Arun Jaitley had given them for 2014- 15.

Some even lamented the loss of interest income of an entire quarter.

With the Budget passed, many financial planners are busy reworking their clients' portfolios. There has to be some tinkering due to the additional limits. Plus, the debt fund investments have to be changed to make these more tax- efficient.

Portfolio rebalancing is important. Not only because of the Budget but due to the good returns from both the equities and debt part of the portfolio. Suppose you had a portfolio with 40 per cent in debt and 60 per cent in equities last year. Today, this portfolio would be heavily loaded in favour of equities. A 10 lakh portfolio with a 40: 60 debt equity ratio would have had 4 lakh in debt and 6 lakh in equities last year. Now, considering the returns of the equities benchmark, the BSE exchange's Sensitive Index or Sensex, the equities portfolio would have swelled to around 8 lakh ( 31.9 per cent). Taking the one- year, nine per cent fixed deposit as a benchmark for debt returns, those returns would be 4.36 lakh. In sum, the portfolio would be worth 12.36 lakh, up 23 per cent.

If you want to follow the same debt to equity ratio, it has changed to 34 per cent in debt and 66 per cent in equities. So, to bring it back to the same ratio, 74,160 needs to be invested in debt. This will take the debt portfolio to 5.01 lakh. Bring down equities to 7.25 lakh and the 40: 60 ratio will be maintained.

This is an oversimplified case, as the returns would differ according to the instruments. If someone had invested in a top performing mid and small- cap fund, the portfolio returns would have rocketed to 116 per cent annually. And, in the worst case, investing aggressively in gold funds would have led to a decline in the portfolio's value by three per cent.

But rebalancing between asset classes is not enough. It is just the first step. There is to be rebalancing within the asset class as well.

The rebalancing in equities can be crucial. For example, the past one year's exceptional performance would give an opportunity to many investors to exit non- performing stocks and mutual funds. For instance, laggards in the past like the infrastructure and real estate sectors are again finding favour. Infrastructure funds are up 65 per cent — among the top performers — in the past year. Similarly, the BSE mid- cap and small- cap indices are up 88 per cent and 65 per cent, respectively. The current outperformance has helped these sectors' returns even over a three- year and five- year period. That is, returns from infra funds are in the green at five per cent annually over a five year period.

Debt, on the other hand, has to be handled with more care because of the taxation in the Union Budget. Suddenly, the tenure of debt investments has become very important.

Earlier, the majority of investors used to simply put in fixed maturity plans or other instruments and once these matured, they would worry about the next investment, as per the flavour of the season.

Now, things have to be thought out differently. Yes, arbitrage funds look good because they are like debt but due to the underlying investment in equities, they get tax benefits like equities. But with returns of nine to 10 per cent, they are only good for one year or so.

The important thing will be look at debt instruments in line with the requirement or preferably through the prism of financial goals. There is no point in investing in a one- year or two- year fund if you do not need the money then.

If you need it for liquidity, go for short- term funds, of less than one year. Similarly, for longer term needs, go for schemes that are over three years, to benefit from some tax relaxation. Since the inflation indexation benefit is still there after three years, the tax liability will be lower vis- a- vis fixed deposits. This will be useful especially if you are close to retirement, as instruments like asset allocation schemes or monthly income plans will give benefits after three to five- year plans.

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 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. Franklin India Bluechip
      4. ICICI Prudential Top 100 Fund

B. Large and Midcap Funds Invest Online

      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
      4. Birla Sun Life Front Line Equity Fund
      5. Franklin India Prima

C. 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
      5. Birla Sun Life Dividend Yield Plus
      6. SBI Emerging Businesses Fund
      7. HDFC Mid-Cap Opportunities Fund
      8. ICICI Prudential Discovery Fund

D. Small and MicroCap Funds Invest Online

      1. DSP BlackRock MicroCap Fund
      2. Franklin India Smaller Companies

E. Sector Funds Invest Online

      1. Reliance Banking Fund
      2. Reliance Banking Fund
      3. ICICI Prudential Banking and Financial Services Fund

F. Tax Saver Mutual Funds Invest Online

1. ICICI Prudential Tax Plan

2. HDFC Taxsaver

      1. DSP BlackRock Tax Saver Fund
      2. Reliance Tax Saver (ELSS) Fund

G. Gold Mutual Funds Invest Online

      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund
      4. Birla Sun Life Gold

H. International funds Invest Online

1. Birla Sun Life International Equity Plan A

2. DSP BlackRock US Flexible Equity

3. FT India Feeder Franklin US Opportunities

4. ICICI Prudential US Bluechip Equity

5. Motilal Oswal MOSt Shares NASDAQ-100 ETF

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...

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...

Bharat Bond ETF

Top SIP Funds Online   The government of India has paved the way for the launch of India's first corporate bond ETF called as Bharat Bond ETF. Edelweiss Mutual Fund will be managing it. The fund is mandated to invest in AAA-rated bonds of select public sector companies (see the table 'List of constituents and their proportions in the portfolio'). The government has a threefold objective behind launching this product. One, to deepen the liquidity of the Indian debt markets and provide a gateway for easy retail participation. Two, to solve investors' dilemma of picking premium bonds. Lastly, to help the underlying government-owned companies raise funding for their operations. But does it make sense for you, the investor, to invest in it? Lets find out. What is the product? As the name suggests, it is an exchange-traded fund which will be listed on a stock exchange from where its units can be bought and sold post launch. It will have two variants - one maturing in 3 ye...

What is Electronic Clearing Service (ECS)?

  As the name suggests, it's an electronic process through which money can be transferred from one bank account to another. According to RBI, this mode is usually used for regular payments and receipts, like distribution of dividend, interest, salary, pension etc. This mode is also used for collection of bills for telephone, electricity, water, various types of taxes, payment of EMIs , investments in mutual funds , payment of insurance premium etc. There are two types of ECS , like most other banking transactions, ECS credit and ECS debit. An ECS credit is used by a bank account holder , usually a large company or an institution for services like payment of dividend, in terest, salary, pension etc. If your mutual fund pays you dividend to your bank account, of all probability it is being paid through ECS credit.ECS debit, on the other hand, is used when a company or an institution is getting money from a large number of people. For example if you are investing in a mutual fund sc...
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