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

Group Health Insurance

Buy Group Health Insurance Online   For Human Resources, the biggest challenge today is to decide whether medical benefits should be offered to employees or not, what type of plans should be offered, what will be the cost and how will the cost be split between employees and employer. Well, most of these are subjective and would depend on a lot of factors including company size, average employee salary, etc. However, this article will give you a fair idea on how you should go about deciding these factors: 1. Why offer group health insurance benefit to employees : Studies have proved that retention rates among employers offering GHI are much higher than the ones who are not offering. Moreover, the cost of providing this benefit as a percentage of salary is very low as compared to the perceived value. As an example, say if average salary of an employee in your organization is 4 LPA. If you decide to offer a health insurance benefit to him for a Sum insured of ...
Read more

Birla Sun Life MIP II Savings 5

  Birla Sun Life MIP II Savings 5 - Invest Online   Have you traditionally been a debt investor but now wish to test waters in equities? Then, debt-oriented funds such as Birla Sun Life MIP II Savings 5 (Birla Savings 5), which have limited exposure to equities, may fit your requirement. With a five year return of 10.5 per cent compounded annually, the fund managed a good 3-3.5 percentage points more than its benchmark Crisil MIP Blended Index, as well as its category average. The fund appears well poised to capitalise on a falling interest rate scenario and has increased the average portfolio duration of its debt instruments in recent times. Suitability Birla Savings 5 is suitable only for conservative investors. If you want to make a beginning in equities and cannot take any short-term declines in your stride, then this fund will suit you. If you are already an equity investor and want to use a debt-oriented fund merely as a diversifier, then you may prefer peers from the HDFC and Re...
Read more

ICICI Prudential Dynamic Plan Invest Online

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   ICICI Prudential Dynamic Plan             Invest Online This fund does remarkably well during falling markets, but fails to show the same prowess during a rising market. The fund sticks to its mandate to adapt to the dynamic nature of the market by shuttling between debt and equity. It takes aggressive asset calls in equity when the market surges by investing in quality mid-cap stocks. At the same time, it adopts a defensive strategy by investing in debt and cash when markets get overvalued, making it a good long-term choice.     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 ...
Read more

Commercial Paper (CP)

Invest Mutual Funds Online Download Mutual Fund Application Forms Commercial Paper (CP): These are issued by corporate entities in denominations of Rs.2.5mn and usually have a maturity of 90 days. CPs can also be issued for maturity periods of 180 and one year but the most active market is for 90 day CPs.   Two key regulations govern the issuance of CPs-firstly, CPs have to be compulsorily rated by a recognized credit rating agency and only those companies can issue CPs which have a short term rating of at least P1. Secondly, funds raised through CPs do not represent fresh borrowings for the corporate issuer but merely substitute a part of the banking limits available to it. Hence, a company issues CPs almost always to save on interest costs ie it will issue CPs only when the environment is such that CP issuance will be at rates lower than the rate at which it borrows money from its banking consortium. ----------------------...
Read more

Lump Sum or SIP?

Invest Mutual Fund Online     You have a lump sum in hand and you wish to invest in equity funds. However, you have heard a lot of talk about investing in equity funds through Systematic Investment Plans (SIPs) because they help average costs, ensure you do not ill-time the market, and help you invest in small sums, besides giving you many other advantages. So, should you invest the money you have in hand in one go, or let it remain in your bank account and then do an SIP? There is no harm in investing a lump sum amount. For all you know, compounding, over the long term, could work better with lump sum. However, make sure you fulfill all of these three criteria if you want to invest in one go. Else, SIP is the way to go. #1: You invest for the long term According to past data, ideally, if you have a time frame of 12 years or more, you can consider lump sum investing (provided you satisfy the other two conditions that follow). So, what is the sanctity behind 12 years? Is it because only...
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