Skip to main content

Building Investment Portfolio

Invest In Tax Saving Mutual Funds Online

Call 0 94 8300 8300 (India)

 

 

Building a great portfolio of mutual funds is both easy and simple, provided you follow this step-by-step method

 

What is a portfolio?

 In a general sense, all investments held by an investor are collectively a portfolio. But to the thoughtful investor, a portfolio must be something more.

 

A portfolio is a group of investments that are meant to serve a single goal. Each distinct financial goal must have a distinct portfolio dedicated to it. Why is this so?

 

Have separate goal-oriented portfolios


You need a distinct portfolio for each goal simply because you will need the money at different points of time, and probably have different risk-reward requirements for each goal. As an illustration, think of a 35-year-old investor who needs to buy a house two years in the future, needs to pay for a child's professional education seven years in the future and save for retirement 25 years in the future.

 

A two-year horizon means that her risk-tolerance (and therefore equity exposure) should be very low. The seven-year horizon for the child's education could justify a somewhat higher risk but since this expense cannot be postponed at all, the risk cannot be very high. In contrast, the 25-year horizon for the retirement fund means that a high risk can be tolerated, especially since beating the compounded affect of inflation over such a long period will need good returns for a good number of years.

 

There is simply no way of creating, tracking and managing a single portfolio that could serve multiple goals simultaneously. If this investor has a single lump of money that is treated as a single portfolio, then she has no way of setting and following the correct risk level for each part of the money.

 

Each goal needs a different amount of money and will need to be liquidated at different times in different ways. It's clear that the only sensible way to invest is to have different portfolios for each financial goal.

 

Decide on an asset allocation


The next step in building your portfolios is to figure out the way it should be split between different types of investments. This has to be done at two levels. At a higher level, you need to decide how much to invest in equity funds and how much in debt funds. At a more micro level, you need to allocate your money between different kinds of equity and bond funds.

 

The first thing to understand here is that there is a distinct time band that is suitable for each kind of fund and if you do nothing but just match each of your portfolios' expected life-span with a type of fund, most of your task is done. At the broad level, money that is needed within the next three to five years must be in debt funds while money that is going to be needed after that can mostly be in equity funds. Very long-term money--something that you are absolutely certain will not be needed for more than ten years--should all be in equity funds. Over such long periods of time the risk of investing in equities--or at least that of investing in a good equity fund--is minimal--and the rewards you can expect are high.

 

The flip side of this purely time-based asset allocation approach is that it implies that long-term money must be actively reallocated when it becomes short-term. When an expenditure item is fifteen years away, you may put its portfolio entirely in equities, but ten years later, when only five years are left before that portfolio has to be encashed, the original all-equity allocation becomes dangerous. At that point, this portfolio is effectively a five-year portfolio and a substantial part should gradually be shifted to debt.

 

The conventional way of deciding asset allocation that many investment advisors follow is to treat investors' entire investment as a single portfolio and then decide on an asset allocation based largely on the investors' age and perceived risk appetite. This is inappropriate in most cases. The correct asset allocation has a lot more to do with what you intend to do with the money than on your age. For example, take the typical retirement portfolio. Conventional thinking suggests that very little risk can be taken with one's retirement portfolio. An investor with a couple of years to go for retirement is almost always suggested an all-debt portfolio. However, in our way of thinking, this is a mistake. A retirement portfolio isn't something that is going to be spent off in a day. Instead, it is a pool of money that is going to be needed for a long-time, perhaps till the investor turns 90 or so.

 

This means that not only does a part of the money is actually very long term, the returns on the money must be good enough to counteract the compounding effect of decades of inflation.

 

If you retire at the age of 60 and put away all your money into a safe debt-based investment that underperforms inflation by just two per cent a year (not impossible in these times of low interest rates), your money will be worth almost 47 per cent less by the time you are 90!

 

It turns out that 'safe' investment is actually the most dangerous thing you could have done with your hard-earned retirement fund. Thus, a realistic appraisal of your own financial needs is the most important part of deciding on your asset allocation. Once you have done that, the rest is easy.

 

One temptation one must never fall into is to decide on asset allocation by trying to time the financial markets. If you look at the history of Indian financial markets, you can see distinct periods when either stocks were generating great returns or debt was generating great returns.

 

It's easy to imagine the wonderful returns that one could have generated by being completely in the right kind of asset at the right time. However, this is 20:20 hindsight. In practice, it is almost impossible to predict things accurately enough to profit from market timing.

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.

Invest Tax Saving Mutual Funds Online

Tax Saving Mutual Funds Online

These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)

Download Tax Saving Mutual Fund Application Forms from all AMCs

Download Tax Saving Mutual Fund Applications

These Application Forms can be used for buying regular mutual funds also

Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )

  1. ICICI Prudential Tax Plan Invest Online
  2. HDFC TaxSaver Invest Online
  3. DSP BlackRock Tax Saver Fund Invest Online
  4. Reliance Tax Saver (ELSS) Fund Invest Online
  5. Birla Sun Life Tax Relief '96 Invest Online
  6. IDFC Tax Advantage (ELSS) Fund Invest Online
  7. SBI Magnum Tax Gain Scheme 1993 Invest Online
  8. Sundaram Tax Saver Invest Online
  9. Edelweiss ELSS Invest Online

------------------

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 MutualFunds 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

Franklin India High Growth Companies Fund

Franklin India High Growth Companies Fund Online One of the key developments that the Street is keenly waiting for is a cut in interest rates by Reserve Bank of India . With demand rising gradually, a rate cut is expected to boost earnings growth for companies. In such a situation, schemes which invest in high growth companies are best suited, especially when seen from a long-term perspective. One such scheme is Franklin India High Growth Companies Fund. Fund managers Anand Radhakrishnan, Roshi Jain and Srikesh Nair strictly follow valuation parameters when it comes to choosing stocks.Valuation parameters, such as enterprise value, price-to-earnings growth ratio, forward price-to-sales ratio and discounted earnings per share, play a critical role in selecting companies for investments. Taking into account these parameters, the fund managers invest in companies which are poised for high growth in their respective sectors. This approach has been in favour of the scheme and it has perform...
Read more

Atal Pension Yojana contribution Tax Benefit for spouse

Contributions to Atal Pension Yojana (APY) are eligible for the same tax benefits as the NPS. This means that the contributions can be claimed under Section 80CCD (1B). The current limit for Section 80CCD (1B) is   Rs   50,000, over and above the   Rs   1.5 lakh limit under Section 80C. Section 80 CCD (1) is a different one, meant to cover employers' contribution towards NPS . You cannot get tax benefit by investing in the name of your spouse under Section 80 CCD . ------------------------------ ----------------- 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. ...
Read more

Avoid NFOs

  Don't get taken in by the flurry of new fund offers. You will be better off sticking to the tried and tested schemes.   For the past one year, to cash in on the bull run in equities, mutual fund houses have gone on a new fund offer (NFO) overdrive. But experts are unanimous in their advice: avoid NFOs . While past performance is not an indicator of how a fund will fare in the future, it does tell the investor how skilful the fund manager is. This crucial information is missing in an NFO. Not only is there no track record to judge an NFO by, many NFOs are similar to funds that already exist. If the new fund is similar to existing funds, you are better off investing in the latter. Around 67% of the new launches in 2014 were closed-end products. Investing in the NFO of a closed-end fund is doubly risky. In case the fund's performance is lacklustre, a closed-end fund does not allow you to exit. Even though closed-end funds are listed on the stock...
Read more

Mutual Fund Exit Load Changes

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 Fund Exit Load Changes AMCs don't communicate about any change in exit load directly with investors, but do update on their website   The exit load applicable to your investments is the load which existed at the time when you invested in the particular fund. Any subsequent changes in the exit load will not be applicable to your investments.   However, Asset Management Companies ( AMCs ) periodically publish addendums in the newspapers, which state any change in exit loads of specific schemes managed by them. Such changes are also posted on their websites. However, a direct communication to an investor is not made, considering the costs involved in doing so. In their own interests, investors should not only track the performance of the funds they i...
Read more

Debt Mutual Fund Dividends are Taxable

DDT is deducted when a non-equity fund declares dividends. Equity and balanced fund dividends are tax-free The AMC is correct to deduct the dividend distribution tax (DDT) as it is mandated by tax laws. DDT in mutual funds is deducted every time a non-equity fund declares dividends. Equity fund and balanced fund dividends are tax-free . It is possible that you have invested in a non-equity fund for the first time or have received the dividend under a non-equity fund for the first time. That is why this is the first occasion when you have come across DDT.   The rate at which non-equity schemes deduct DDT has also gone up after the July 2014 budget. This is due to a change in calculation methodology. Earlier, if the fund has to declare a dividend of R 100, it used to make a provision for R 128.3, paying R 28.3 to the taxman and distributing the balance to the investor. This allowed the investor to bear less tax since the effective tax rate was 22.07 per ce...
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