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

ICICI Pru Mutual Fund Dividend

ICICI Prudential Mutual Fund has announced dividend under the following schemes: Scheme Dividend ( Rs /unit) ICICI Pru Capital Protection Oriented Ser V Plan B-D 0.03611325 ICICI Pru Capital Protection Oriented Ser V Plan B Direct-D 0.03611325 ICICI Pru Balanced Advantage Direct-DM 0.06 The record date has been fixed as February 08, 2017. ------------------------------ ------ Invest Rs 1,50,000 and Save Tax upto Rs 46,350 under Section 80C. Get Great Returns by Investing in Best Performing ELSS Funds Top 4 Tax Saver Mutual Funds for 2017 - 2018 Best 4 ELSS Mutual Funds to invest in India for 2017 1. DSP BlackRock Tax Saver Fund 2. Invesco India Tax Plan 3. Tata India Tax Savings Fund 4. BNP Paribas Long Term Equity Fund Invest in Best Performing 2017 Tax Saver Mutual Funds Online Invest Best Tax Saver Mutual Funds Online Download Top Tax Saver Mutual Funds  Application Forms For further information contact  SaveTaxGetRich on 94 8300 8300 ------------------------------ ------ Leave y...
Read more

Hidden Bank Fees

  What Banks Hide From Customers Imagine after a peaceful and exciting holiday you receive your bank statement with steep charges. You then rush to your bank and start confronting staff members and to your dismay, you come to know that the high end debit card was charged very heavily. Wouldn't this cause damage to your finances? So remember, the world outside is full of deceptive and double cheating people. Unethical practices are always used by company sales person in order to meet the target. Credit card companies, mutual funds and bank institutions always play dirty tricks to lure customers and the practices are rampant. So here's how you should be careful while dealing with your banks: High End Debit Card Charges While opening an account with a bank you opt for a debit card with minimal charges. But later on when you upgrade your card and opt for high end debit card the annual charge rise by a good amount. Though such a card has slew of features but it all comes at a high ...
Read more

Partial withdrawal from PPF

  Public Provident Fund (PPF) account has a lock in period   If you opened a PPF account to meet your retirement needs,, think twice about withdrawing from this fund before retirement. But provided it's an emergency here are the rules. Public Provident Fund (PPF) account has a lock in period before which you cannot withdraw your money.   The partial withdrawal is allowed after the completion of 6 financial years . This means that you will be allowed a partial withdrawal from 1 April 2017. The maximum partial withdrawal allowed is the least of the following: 50 percent of the account balance at the end of fourth financial year, 31 March 15 50 percent of the account balance of the end of previous financial year, 31 March 17.   There's a loan option available on your PPF account between the fourth and the sixth financial year. You can obtain a loan of up to 25 per cent of the balance in your account. However, this will attract interest of 2 percent more than the prevailing ...
Read more

Updating a minor PAN card upon becoming adults

  Updating a minor's PAN card once they become adults A PAN card issued in the name of a minor does not contain the minor's photograph or signature, and therefore, cannot be used as a valid proof of identity. Once a minor PAN card holder turns 18, the relevant changes must be made in the PAN records. A new card is then issued bearing a photograph and signature. Application The applicant is required to fill up the "Request for new PAN card andor changes or correction in PAN data" form. The form can be filled up online by accessing NSDL's Tax Information Network website and clicking on the online PAN application tab. Information The applicant must mention the existing PAN number in the application and check the `photo mismatch' and `signature mismatch' boxes, and submit the online form. The form must also be printed out, signed by the applicant, and submitted along with two photographs. Documents Identity and address proof in the form of a copy of the app...
Read more

Perpetual SIP - Its Advantages

Retail investors have taken a fancy to investing in mutual funds through systematic investment plans (SIPs). As per industry estimates, Rs 4,000 crore flows into SIPs every month. One way to take advantage of SIPs in a true long-term manner is to opt for a perpetual SIP 1. What is a perpetual SIP? In an SIP , you make periodic investments in a mutual fund scheme of your choice generally every month for a pre defined tenure. While signing up an SIP mandate , you have the option to leave the end-date column blank. If the column is blank, it means the investor has opted for a perpetual SIP . Most fund houses assume this SIP will continue till December 2099 unless you give a written communication to stop it. However, some fund houses require you to tick the `perpetual option'. 2. What are the advantages of perpetual SIPs? Registering an SIP involves a lot of paperwork and it takes time. It is observed that many investors skip their SIP instalments when they go for short-tenure option...
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