Periodically Review Your Portfolio

However well-planned your investment strategy is, it is not likely to be equally effective over diverse market conditions. To get the best out of your investments, it is essential that you take time to reassess your portfolio and realign it in according to your goals and the overall situation.

KEY POINTS

• A haphazard investment approach and the resultant disappointment often create misperceptions in the minds of investors about the ability of different asset classes to produce the desired results.
• It is important for a long-term investor to periodically review the composition of his/her portfolio is important to ensure that it not only remains on track but also doesn’t exceed his/her risk taking capacity.
• Analyse your asset allocation, review your insurance portfolio, make tax savings an integral part of your overall investment plan and invest in equities through a SIP with a clearly defined time horizon. The more time you give your equity investments to grow, the more you benefit from the power of compounding.
• If you have been investing aggressively in gold in the hope of earning returns similar to what you could earn in the past, it would be prudent to tone down your expectations as well as to realign your portfolio.

Investing money is a simple process, provided one has a plan as well as a strategy in place to implement it. However, one often comes across investors who struggle to achieve returns from their investments. This is because they either do not plan or abandon their long-term investment plan when faced with short-term adversities in the market. Needless to say, a haphazard investment approach and the resultant disappointment often create misperceptions in the minds of investors about the ability of different asset classes to produce the desired results.

It is equally important for a long-term investor to periodically review the composition of his/her portfolio to ensure that it not only remains on track but also doesn’t exceed his/her risk taking capacity. Although there are no hard and fast rules about the periodicity of the review, maintaining the discipline of reviewing one’s portfolio at fixed intervals certainly helps. One can begin with reviewing the portfolio twice a year.[PAGE BREAK]

Here is what you need to do:

• The first priority should be to analyse your asset allocation. If it is too aggressive, you must rebalance it in line with your risk profile and time horizon. On the other hand, if your long-term asset allocation is too conservative, it is time to either start investing in an asset class like equity or to increase exposure to it to give your money a chance to earn a positive real rate of return.
  
  
• Review your insurance portfolio. Make sure you have adequate risk cover in the form of life insurance, health insurance and property insurance. If you have been following a strategy of mixing your investments with your insurance needs and have accumulated a number of policies, it is time to change that. Remember, it is not the number of policies but the quantum of risk cover that should matter to you. A term insurance plan is an ideal product to reduce your costs and to ensure adequate risk cover. For a young family, a family floater health insurance policy would be suitable.
  
  
• If you have been investing haphazardly to save taxes, change that rightaway. The correct way to do so would be to make tax savings an integral part of your overall investment plan. Besides, while planning your investments under Section 80C, first ascertain how much you have to invest in compulsory options such as PF, insurance premiums and housing loan repayment, and then decide the amounts for other options such as PPF, ELSS and NSC, etc.
  
  For the current year, keep an eye out for the Rajiv Gandhi Equity Savings Scheme that would allow income tax deduction of 50 per cent on an investment up to Rs 50000, most likely in direct equities.
  
  
• If you have been investing in equity funds through SIPs on an on and off basis, it is time to invest with a clearly defined time horizon. Remember, equity as an asset class requires a time commitment for investors to benefit from its true potential. Besides, the more time you give your equity investments to grow, the more you benefit from the power of compounding.
  
  
• During the current financial year, tax-free infrastructure bonds will bring another opportunity to give that extra edge to your debt portfolio. Remember, these are different from infra bonds which gave investors a tax benefit on investments of up to Rs 20000 under Section 80 CCF during the last two financial years.
  
  Depending on your time horizon and the need for liquidity, mutual funds offer you a variety of debt funds such as ultra short-term debt funds, short-term debt funds and Fixed Maturity Plans (FMPs). If you are looking to invest in income funds, you need to tread carefully as the RBI has limited legroom for aggressive rate cuts.
  
  
• If you have been investing in gold funds/gold ETFs either with an objective of accumulating gold for specific goals such as a child’s wedding/gifting gold to a near and dear one or as a part of asset allocation, you can continue the process. However, if you have been investing aggressively in gold in the hope of earning returns similar to what you could earn in the past few years, it would be prudent to tone down your expectations as well as to realign your portfolio.

HEMANT RUSTAGI
CEO, Wiseinvest Advisors Pvt. Ltd.