Skip to main content

Adjust portfolio if allocation to have right asset allocation strategy

Invest Mutual Funds Online

Call 0 94 8300 8300 (India)


   The stock market index belied investor expectations last financial year as predominantly global concerns stained its performance. Adding to the woes were scams that weaned the faith of foreign institutional investors (FIIs). Fund managers and investors panicked, and succumbed to selling pressures with concerns over the unrest in Egypt.


   Rising food prices and inflation have left small investors with little surplus for investments. Increase in home loan rates has increased the financial burden on homeowners. These additional factors have compounded to volatility in the stock markets. Is it time to shuffle your portfolio?

Don't shuffle for short-term gains    

Shuffling is also referred to as rebalancing. Rebalancing is periodic adjustment of a portfolio to restore the original asset allocation mix. If your investment strategy or risk threshold has changed, you can rebalance your investments so that the asset classes in the portfolio align with your new asset allocation plan.


   Do not indulge in shuffling your portfolio for short-term market changes. Rebalancing is a well planned quarterly or annual activity. It helps you book profits within your portfolio effectively and reduces risk exposure by maintaining the primary asset allocation.


   A booming market provides excellent opportunity to make profits. Consequently, the equity exposure in your portfolio increases phenomenally. This makes the percentage of debt investments lesser as compared to the original debt allocation. An investor is usually driven by the desire to reap greater yields in upward-bound equity markets.

Benefits of rebalancing    

It requires considerable effort and strategy to reap good returns in a falling market. Anyone can make it rich in a bull run but not in a downward-bound index. Investors usually stay away from equity markets in choppy conditions. Despite the market condition, an investor must re-align his portfolio of investments that have strayed away from the original asset allocation strategy periodically.


   There are numerous benefits from this exercise. Rebalancing helps your portfolio remain at your risk tolerance level. An asset allocation strategy is chalked out based on your age, risk appetite, financial goals, investment objectives, savings, debts, income flow and years left before retirement. The portfolio could become conservative or risky based on fluctuations in the stock markets. Rebalancing restores the portfolio to the original asset allocation plan to meet your goals.

CASE STUDY

Maheshwar has received a bonus of Rs 2 lakhs and wants to invest. Being a person with a moderate risk appetite, he prefers an asset allocation mix of 60 percent in debt and 40 percent in equity. He locks Rs 1.20 lakhs (60 percent of Rs 2 lakhs) in banks deposits, post office monthly income schemes and fixed maturity plans (FMPs). The remaining Rs 80,000 (40 percent of Rs 2 lakhs) is invested in stocks.


   After a year, Maheshwar discovers that the value of stocks in his portfolio has gone up by 40 percent and has become Rs 1.12 lakhs. On the other hand, his investments in debt have become Rs 1.32 lakhs (at 10 percent returns).


   He must rebalance his portfolio to get back to the original asset allocation mix of 60 percent debt and 40 percent equity. In line with his risk appetite, he sells some shares and reinvests in debt instruments that he is more comfortable with. Currently, his total investments are valued at Rs 1.12 lakhs plus Rs 1.32 lakhs, i.e., Rs 2.44 lakhs. At the end of the rebalancing exercise, he must have 40 percent of Rs 2.44 lakhs in stocks and the remaining locked in debt.

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 Mutual Funds Online

Transact Mutual Fund Online

Download Mutual Fund Application Forms from all AMCs

Download Mutual 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. Birla Sun Life Front Line Equity Fund
    2. Large and Midcap Funds Invest Online

      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
    1. 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
    1. Small and MicroCap Funds Invest Online

      1. DSP BlackRock MicroCap Fund
    1. Sector Funds Invest Online

      1. Reliance Banking Fund
      2. Reliance Banking Fund
    1. Tax Saver Mutual  Funds  Invest Online
      1. ICICI Prudential Tax Plan
      2. HDFC Taxsaver
      3. DSP BlackRock Tax Saver Fund
      4. Reliance Tax Saver (ELSS) Fund
    2. Gold Mutual Funds Invest Online

      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund

 

 

Popular posts from this blog

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...
Read more

WEALTH TAX

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 WEALTH TAX   WHAT CONSTITUTES WEALTH? For wealth tax purposes, "wealth" means property , urban land, car, jewellery , yacht, boat, aircraft and cash in hand in excess of Rs 50,000. CAUTION POINT | Do not think you will have an easy escape from wealth tax by transferring your `wealth' without consideration to your spouse or minor child. Such assets will also be considered as your wealth. HOW TO DETERMINE YOUR TAXABLE WEALTH Add the taxable value of the above assets (computed as per the detailed rules for valuation) owned by you as on March 31 (for FY 2014-15, it will be March 31, 2015). In case you sold your car during the year, it will not be taxable wealth. Deduct loans if any obtained by you to acquire any of the taxable assets from the value of gross tax out for at least 300 days in a...
Read more

Equity Savings Fund

Invest Equity Savings Fund Online   The best part about these funds is that they are subject to equity fund taxation and at the same time are structured like MIP like funds . This new category, equity savings funds , offer a little of everything. They allocate money to equities & equity related instruments, and fixed income. They aim to generate returns by diversification. Such funds invest in fixed income and arbitrage to protect the investors from short term volatility and equity for capital gains. The best part of these funds is that they are subject to equity fund taxation and at the same time are structured like MIP funds.   MIP funds however are subject to debt fund taxation. Investors Equity savings funds are suitable for the following: First time investors who seek partial exposure to equity with less volatility and greater stability Investors seeking moderate capital appreciation with relatively lower risk Those wh...
Read more

How to Pick Top Performing Mutual Fund Schemes

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   How to Pick Performing Schemes  Funds that continue to stay in the top grade of performance over longer periods are the ones to bet on, advise investment experts   The mutual fund performance charts of the past few months make for an impressive reading. Funds across all categories boast of stellar returns. Sample this: The mid and small cap category has averaged 77 percent return over the past 12 months, with the best fund delivering a staggering 120 percent. The tax-saving funds also average an impressive 51 percent, including a fund which has soared 92 percent. Many of the table-toppers are funds of proven quality and track record. However, there are also schemes that are not that well-known. Some of these have rarely made it to the performance charts in the past, yet, of late, they bo...
Read more

8% Government of India Bonds quick guide

For those seeking comfort in safety of returns, the Government of India issued 8% savings bond once again comes to the fore. First launched in 2003, these bonds are issued by the government with a maturity of 6 years. The bonds are available at all times with specified distributors through whom you can apply to invest in them. Here is a quick guide to what the bond offers and its features to ascertain to check for suitability. What are Government of India bonds Government of India bonds are like any other government bonds with specified rate of interest. The rate is fixed at 8% per annum paid half yearly, or you can opt for cumulative payment of interest at the end of the tenure. You can buy these bonds from State Bank of India and its associates, other nationalized banks and some private sector banks such as HDFC Bank Ltd and ICICI Bank Ltd, among others. The bonds can be bought from the offices of Stock Holding Corporation of India as well. They are available in physical form onl...
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