Invest Wisely For Wealth Creation

Hemant Rustagi
Chief Executive Officer, Wiseinvest Pvt Ltd.

Investing your hard-earned money to fulfil your financial goals requires you to follow an investment process. This process involves a few important steps like having an investment plan in place, working out the right asset allocation and choosing the right investment options in terms of transparency, tax-efficiency of returns as well as flexibility to rebalance the portfolio, if required, to align it to the changes in your own circumstances as well as financial markets. While we usually work very hard to earn money, many of us are often guilty of not being consistent with our investment process.

In fact, at times, even the most careful and diligent investors end up making haphazard investment decisions and thereby put their financial future to risk. Then, there are those who allow certain misconceptions as well as ad hoc investment strategies to make their entire process quite complicated. If you are looking to get the best out of your investments, you must follow the right investment strategy and choose the most suitable investment options. By doing so, you improve your chances to secure the financial future of your near and dear ones. Here is what you need to do to make it a reality.

The focus has to be on deciding an appropriate asset allocation. Apart from ensuring diversification in the portfolio, it helps in determining the kind of risk you are likely to take and the kind of returns you can expect from your portfolio. Unfortunately, not many investors follow the asset allocation norms. On the one hand, there are investors who do not really understand the need to follow an asset allocation process and on the other hand there are those who find this process a little cumbersome. Remember, asset allocation helps in maintaining the right balance between risk and reward.

If you face difficulty in deciding the right asset allocation for yourself and maintaining it through your defined time horizon, investing in hybrid funds can be a good way to do so. There are a variety of hybrid funds on offer from mutual funds and you can benefit from them in more than one ways. First, hybrid funds allow you to invest money in a pre-decided asset mix. For example, if you want to restrict the exposure to equities to say between to 10-25 per cent, there are debt-oriented hybrid funds.

If you are looking to get the best out of your investments, you must follow the right investment strategy and choose the most suitable investment options.

Similarly, if you are comfortable with higher exposure to equities, equity-oriented hybrid funds would fit the bill.

If you wish to have the flexibility of your asset allocation getting realigned depending upon the market conditions, there are balanced advantage funds that manage asset allocation dynamically. Second, since these funds have a cap on exposure to different asset classes, you need not worry about losing control on the composition of your portfolio from time to time. Third, this periodic rebalancing between different asset classes by the fund managers is quite tax-efficient as you would not be liable to pay capital gain taxes. Of course there is a flip side too. Hybrid funds are limited by the fact that you may not benefit from different investment strategies and philosophies like in the case of funds investing in a single asset class.

For example, for someone who is comfortable investing in pure equity funds, there are a number of options like well-diversified large-cap funds, mid-cap funds, multi-cap funds, opportunities fund, value funds, thematic funds and sector funds. Similarly, some of the funds houses may not have the required expertise to manage both equity and debt portfolios efficiently and hence the returns could suffer. Therefore, you need to be a little careful while selecting the funds. As is evident, hybrid funds can play an important role in improving your portfolio returns. Clearly, the benefits of investing in hybrid funds outweigh the negatives, especially if you are not so experienced and do not have the wherewithal to manage your portfolios actively. Over time, you can include other funds in the portfolio and expand your investment horizon.