Propel Your Portfolio In The New Financial Year

Hemant Rustagi
Chief Executive Officer, Wiseinvest Advisors

It is important to plan investments before initiating your investment process. Planning includes establishing your goals, defining a time horizon and setting a target for each one of them. This helps you decide an ideal asset allocation that not only balances the risk and reward in your portfolio, but also ensures that you have sufficient financial resources at every important stage of your life.

While a financial plan creates a road-map for your investments, it is equally important to ensure that your portfolio remains on track through your defined time horizon. Moreover, since investment is an on-going process, various aspects of the portfolio analysis like asset allocation, performance, planning tax saving investments as well as increasing investment amount every year must be reviewed in a disciplined manner.

If you are not doing this already, the start of a new financial year can be an ideal time to begin this process. Although there is no significance of a new financial year in this process, it helps in maintaining the discipline of reviewing the portfolio at fixed intervals. Besides, this helps you avoid too much experimentation during periods of uncertainty. A simple strategy to avoid making ad-hoc decisions is to stay focused on your investment goals. It automatically irons out indiscretions from your investment process.

Here is what you need to do about various important aspects while reviewing your portfolio:

Asset allocation - Since asset allocation plays a key role in determining the potential return and the attendant risks, it must remain relevant through your defined time horizon. Considering that asset allocation changes over time, don’t hesitate to rebalance it, if required. Since the portfolio is usually structured to meet a particular risk tolerance, it may suffer “risk drift”, if not rebalanced timely.

Tax savings investments - If you have been investing in tax savings instruments in an ad-hoc manner, it’s time to change that. This is an ideal time to plan for tax-saving investments and make them an integral part of your overall portfolio. By doing so, you can make these investments count in your wealth creation process. If you are looking to invest in ELSS through SIP, you must begin the process in April 2019 itself.

Rethink on dividend option in hybrid and funds - There are investors who opted for dividend pay-out in the past merely because dividend from equity and balanced funds was tax-free. Some even used dividend pay-out option as a tool to book profits periodically. However, consequent to introduction of Dividend Distribution Tax (DDT) of 10%, there is a need to review this strategy.

If you are one of those investors and still hold investments under dividend option and despite having no real requirement of dividend either for running expenses or for any other need, it would be advisable to switch into the growth option. If your investments are under growth option for over a year or more and there is a need for regular income, a Systematic Withdrawal Plan (SWP) can eliminate the uncertainty in receiving regular income as well as reduce tax implication as compared to DDT.

Review insurance portfolio - Insurance is an important aspect of risk management and hence you must ensure that this aspect is well covered in your plan. If you have been following a strategy of mixing your investments with insurance and have accumulated a number of policies, you must have a rethink on it. Remember, it’s not the number of policies but the quantum of risk cover that is the key for your risk management. A term insurance plan is an ideal product to reduce costs and to ensure adequate risk cover.