Skip to main content

Diversified Portfolio can Grow your Wealth




It pays to take the mutual fund route to invest in equity. Your investments will be monitored by experts, allowing your wealth to multiply over time

A common accusation many readers make about this column is that while it encour ages investing in equity, it does not carry specific recommendations about where to invest and how much. That kind of specific investment advice is quite dangerous, though it admittedly makes life easier for the investor.Unless one is a financial adviser, and can take on the responsibility of monitoring how the recommended products are working, it is simply unethical to reel off names.

The question is not of expertise, but of the nature of the business of equity investing itself. Even the most intensive research can come up short when unexpected events impact businesses and markets.There is no telling in advance. It is not as if I hold b ack something precious from the readers of this column; it is just that I cannot forecast the future.


A very comforting emotion is the sense of control. Investors want to believe that the equity investments they make will behave in a manner that they can predict, understand, control, and therefore not worry much about. When they realise that things could go wrong; that their money could be at risk; or that their choices will perform poorly, not doing anything seems like a better place to be in. The comfort of a small fixed interest in the bank seems like a safer option. But that so harshly short changes your wealth.


Many investors know about the benefits of long-term investments in equity. What holds them back from acting, then? Two primary reasons I would think. First, the idea of a higher return must be associated with something concrete. The inability to associate a high return with a specific product makes them think that such examples are hypothetical.


Second, the lack of conviction in the process that can enable a higher return. When I point out that diversification is the only way to achieve better returns, I have lost my investor already. They want me to tell them whether they should buy stock A or stock B, and if I say that they should have both, and a dozen more, so they can manage risks better, investors fail to grasp the merit of this process.The adamant stance to know what can happen in the future clouds their decision-making process.


Let me offer a four-step process, which I hope will help many such investors who fail to make the decision to switch from low return fixed income products, to equity investing. Needless to add, equity is for the long run and for growth in the value of the investment. If you think you will need to draw the money in a short period of time, it is best left in the bank.


First, investing in equity is not about picking the right stocks. It is one thing to be amazed by the story of multi-baggers that made stupendous gains, but it is another to pick one before it becomes a winner. If you spend your time trying to pick stocks, you will have to allow for the many mistakes you will make in the process. The learning curve is steep and the lessons harsh. If you are a first-time investor, choosing to let money idle in the bank rather than invest in equity, you could make expensive mistakes trying to dabble in stocks.Equity means the market as a whole or the asset class that invests in growing businesses. That is the orientation you must keep.


Second, a portfolio of stocks is better than individual bets. Since you cannot foresee the future, you have to begin with a bunch of stocks, and weed out whatever is going bad as you go along. If you are buying stocks, you should hold 20-25 equity stocks to be able to cushion yourself from the wrong decisions you could make. Unless you run a company and are on its board as an inside investor, or have enough wealth to worry about risks, concentrated bets in a few stocks won't take you too far. If you cannot construct and manage such a portfolio, buy an equity fund or an index fund. Define your search thus: You are looking for a portfolio of stocks, that will be actively managed to throw out what is not performing. You can buy and hold a portfolio passively, only if some one else is monitoring it for quality.


Third, equity investing involves both strategic and tactical choices.For example, if your intention is to be invested in large and wellknown companies that are market leaders in their segment, an investment in a large-cap equity fund or a narrow index like the Nifty will serve your purpose. You will find that large-cap funds tactically modify their holdings in sectors and stocks to do better than the index. The choices in equity funds and indices expands this choice of tactical holdings further, to midcap stocks, small-cap stocks, themes and sectors. Take a pyramid approach--more in strategic choices at the bottom and a tapered smaller holding in tactical portfolios. Fourth, the process of selecting a specific fund can be simplified.Each fund house offers a lengthy list of products, but you are looking specifically for large-cap funds, midand small-cap funds, and themes and sectors if you are taking tactical calls. Discard all names that sound complex, and products that mix up too many things. Look for a diversified portfolio and check if the fund has a 10-year track record. Compare its performance with the benchmark index year-on-year. If the fund has done better than the index in 7 out of 10 years, you should do fine.


I routinely receive queries that ask SIP or lump sum? How much should the SIP be? How many SIPs? In the larger scheme of things this will not matter; that you invested it in equity will. Once you begin investing, you will receive a folio number. You can add to it by buying at any time you wish, whenever you have surplus funds. Choose 4-5 funds or indices at the most. Begin investing and ensure that your money is not idle.


Over time, the benefits of having invested in equity, the merits of having your money in a portfolio, and the advantages of having someone to monitor the stocks in the portfolio, will all come into play to deliver wealth that you would be proud of accumulating. The bridge to cross is the conviction that a good process will deliver good returns, even if you cannot completely foresee or control it. That is the attitude to acquire.

 




Invest Rs 1,50,000 and Save Tax up to Rs 46,350 under Section 80C. Get Great Returns by Investing in Best Performing ELSS Funds. Save Tax Get Rich

For further information contact SaveTaxGetRich on 94 8300 8300

OR

You can write to us at

Invest [at] SaveTaxGetRich [dot] Com

OR

Call us on 94 8300 8300




 

Popular posts from this blog

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...

Mutual Fund Review: HDFC Index Sensex Plus

  In terms of size, HDFC Index Sensex Plus may be one of the smallest offerings from the HDFC stable. But that has not dampened its show, which has beaten the Sensex by a mile in overall returns   HDFC Index Sensex Plus is a passively managed diversified equity scheme with Sensex as its benchmark index. The fund also invests a small proportion of its equity portfolio in non-Sensex scrips. The scheme cannot boast of an impressive size and is one of the smallest in the HDFC basket with assets under management (AUM) of less than 60 crore. PERFORMANCE: Being passively managed and portfolio aligned to that of the benchmark, the performance of the index fund is expected to follow that of the benchmark and in this respect, it has not disappointed investors. Since its launch in July 2002, the fund has outperformed Sensex in overall returns by good margins.    While every 1,000 invested in HDFC Index Sensex Plus in July 2002 is worth 6,130 now, a similar amount invested in Sensex then wo...

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...

National Savings Certificate

National Savings Certificate Here's everything you need to know about the 5-year savings scheme offered by the Government This is a 5-year small savings scheme of the government. From 1 July 2016, a National Savings Certificate (NSC) can be held in the electronic mode too. Physical pre-printed NSC certificates have been discontinued and replaced with Public Provident Fund-like passbooks. What's on offer The minimum amount you can invest in them is Rs100 and there is no upper limit. Under this scheme, all deposits up to Rs1.5 lakh qualify for deduction under section 80C of the Income-tax Act, 1961. The interest earned is taxable. You can invest in multiples of Rs 100. These certificates can be owned individually, jointly and also on behalf of minors. The interest rates for all small savings schemes are released on a quarterly basis. The effective rate for NSC from 1 October to 31 December is 8%. The interest is calculated on an annual compounding basis and is given along w...

Different types of Mutual Funds

You may not be comfortable investing in the stock market. It might not seem like your cup of tea. But you can start by investing in Mutual Funds. Many first-time investors invest in Mutual Funds. This is because they do not know how to invest in individual securities. Basic information on Mutual Funds People invest their money in stocks, bonds, and other securities through Mutual Funds. Each Fund has different schemes with specific objectives. Professional Fund Managers look after these schemes. Your Fund Manager could help you invest in a scheme that suits your financial goal. Functioning of Mutual Funds You could make money through Mutual Funds in different ways. A single Mutual Fund could hold many different stocks, bonds, and debentures. This minimizes the risk by spreading out your investment. You could earn dividends from stocks and interest from bonds. You could also earn capital by selling securities when their price increases. Usually, you could choose to sell your share any t...
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