Skip to main content

Ideal or Optimal portfolio

Determining if a portfolio is efficient or optimal is subjective. What is good for one investor may not be so for another. An ideal portfolio depends on a persons risk appetite, cash flow requirement, goals, and the investments liquidity and tax efficiency.

Asset allocation: The first step is to decide allocation between asset classes. The demarcation depends on the risk tolerance and time horizon of the goal.

Risk tolerance is willingness to risk losing some or all your money, in exchange for higher potential returns. For example, someone starting out should look at balanced funds or exchange-traded funds. When the investor understands the risk-return associated with equity and debt, he or she could increase or decrease exposure to the asset class.

Asset allocation works only if the investor shifts the gain from one to the other, to maintain the balance.

Investment horizon: Your asset allocation also depends on the tenure of the goal. If you are young and saving for retirement, you can keep higher exposure to equity in the kitty. On the other hand, if you are saving for buying a car in three years, keep the money primarily in debt.

If you have a financial goal with timelines attached like child education, marriage, and so on, it is best to keep money in debt. For longer tenure goals, one can look at equity - the longer the goal, higher the equity exposure. Once three years away from the goal, keep shifting the equity investment to debt. This will help cut the volatility associated with equity.

Building the portfolio: Evaluate the investments you prefer. For a young person, the portfolio can have a mix of stocks, bonds, mutual funds, Public Provident Fund (PPF) and bank fixed deposits. The mix can be tilted more towards stocks or equity-oriented mutual funds.

When investing in stocks directly, do keep some dividend-paying ones. They will help you earn, even if the overall market sentiment may not support growth of the stock for a certain period.

Always go for cheaper investment options. Suppose you want to invest in equity. Most brokers offer lower brokerage cost for online investment as compared to offline. Similarly, in case of mutual funds, though there is no entry load, for some schemes the fund houses charge exit load if you redeem investment before a stipulated time, say six months or a year.

Monitor your assets at regular intervals. You can then evaluate if your investment decision was okay or needs more evaluation.

Look at the tax angle, too. Returns from some investments such as PPF, tax-free bonds and dividend from stocks/mutual funds are exempt from tax.

Optimising the portfolio: An optimal portfolio should have investments youre comfortable with and match your goals tenure. Many investors find this would mean a range of investment options. For example, some consider an optimal strategy to be inclusion of a mixture of stocks, with low, medium and high rates of volatility, several bond issues and a commodity or two. When one type of investment experiences some downturn, the other types provide stability to the portfolio.

Portfolio rebalancing: At times, you don't want to rebalance too often, as you'll have to deal with transaction cost and taxes. It's recommended you rebalance your portfolio at least once a year. Instead of rebalancing based on time, it is better to do so when there is sizeable deviation in the portfolio allocation matrix.

Another strategy that you can use to balance portfolio is to adjust in a gradual manner your portfolio using new funds to buy more of the underperforming assets. This technique may not be adequate for a larger portfolio.

Tax impact: Some strategies to consider on taxes include investing in tax sheltered investments such as PPF, tax free bonds and insurance. These help to minimise capital gains tax liabilities and make use of indexation benefits. Suppose you invest in PPF: your actual yield, computed pre-tax, is around 11.4 per cent for a person in the 30 per cent tax bracket.

Stick to asset allocation, use tax-efficient instruments and invest in line with risk profile

Popular posts from this blog

Save Tax With Mutual Funds

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       Mutual funds are ideal as long term investment avenues for retail investors. To encourage investments in this avenue, the Government of India offers investors a spate of tax benefits thus ensuring maximum benefit from mutual funds held beyond a year. Sample some of the key benefits and refer to the table for a detailed list of tax rates for different types of schemes ·        Avail deductions under Sec 80C of the Income Tax Act by investing up to a maximum of Rs. 1 lakh in designated Equity Linked Savings Schemes (ELSS). Such investments have a compulsory lock in period of 3 years. ·        First time retail investors in equity with a gross total income of up to Rs. 12 lakh can invest up to Rs. 50,000 in specific MF schemes un...

How much to invest in gold ?

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India) Let your motivation dictate the share of the yellow metal in your portfolio Enough has been said and written about gold as an investment option. The latest argument is that the craze for gold among Indian households is endangering our country's balance of payments. The policymakers are busy trying to find ways of discouraging investment in gold, but if households keep the common good in mind, they would be paying the market price for gas cylinders as they do for, say, their mobile phone bills. After all, private decisions are driven by private motives. So, how should a household look at gold from its own perspective? Gold is primarily acquired for its merit as a store of value. Even if the worst crisis hits a family, the gold that it holds could be put to use anywhere in th...

LIC's JEEVAN SHIKHAR

  LIC's Jeevan Shikhar is a participating, non-linked, saving cum protection single premium plan wherein the risk cover is ten times of Tabular Single Premium. The proposer will have an option to choose the Maturity Sum Assured. The premium payable shall depend on the chosen amount of Maturity Sum Assured and age at entry of the life assured. This plan also takes care of liquidity need through its loan facility. The plan will be open for sale for a maximum period of 120 days from the date of launch. 1.   BENEFITS   : a) Death Benefit: On death during first five policy years: Before the date of commencement of risk   :   Refund of Single Premium without interest. Single Premium mentioned above shall not include any extra amount if charged under the policy due to underwriting decision and taxes. After the date of commencement of risk   : "Sum Assured on Death" equal to 10 times the tabular single premium shall be payable. On death after completion of five policy years but b...

IDFC Nifty ETF

IDFC Mutual Fund has launched IDFC Nifty ETF . The fund seeks to provide returns tha, before expenses closely correspond to the total return of the underlying index, subject to tracking errors. The minimum investment is `5,000 and the NFO closes on 30 September. ------------------------------ ----------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds Top 10 Tax Saver Mutual Funds to invest in India for 2016 Best 10 ELSS Mutual Funds in india for 2016 1. BNP Paribas Long Term Equity Fund 2. Axis Tax Saver Fund 3. Religare Tax Plan 4. DSP BlackRock Tax Saver Fund 5. Franklin India TaxShield 6. ICICI Prudential Long Term Equity Fund 7. IDFC Tax Advantage (ELSS) Fund 8. Birla Sun Life Tax Relief 96 9. Reliance Tax Saver (ELSS) Fund 10. Birla Sun Life Tax Plan Invest in Best Performing 2016 Tax Saver Mutual Funds Online Invest Online Download Application Forms For further information contact Prajna Capital on 94...

UTI Fixed Term Income Fund Series XVI - I

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India)   UTI Fixed Term Income Fund Series XVI - I (366 days). New Fund Offer opens on : Friday, August 16, 2013 New Fund Offer closes on : Monday, August 19, 2013 Allotment Date : Tuesday, August 20, 2013 Scheme Tenure : 366 days Maturity Date : Thursday, August 21, 2014 Happy Investing!! We can help. Call 0 94 8300 8300 (India) 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 in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C. Inve...
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