How to articulate an investment portfolio?

Siddhi Sharma
/ Categories: Mutual Fund, MF Unlocked
How to articulate an investment portfolio?

Investment decisions made today affect our future wealth. It would make sense that we utilize a plan to help guide our decisions. Astoundingly, the majority of people do not have an investment plan in place. Taking some time to put together a financial plan can reap tremendous benefits. 

Financial planning provides direction and meaning to one’s financial decisions. It allows one to understand how each financial decision affects other areas of finances. For instance, buying an investment product might aid you to pay off your loans faster. By viewing each financial decision as part of a whole, one can consider its short and long-term effects on life goals. One can also adapt more easily to life changes and feel more secure that goals are on track. 

To articulate an investment portfolio, one should first know his needs thoroughly. There are various investment objectives such as buying a house, car, children’s education, retirement, and many more. One should consider all his objectives and go further to formulate this portfolio according to his needs. He needs to park some funds for the short term some for the medium term and some for long term as per his goals and objectives. Second parameter that arises is the risk you are willing to take. According to your risk appetite, an investment instrument should be chosen by you. Some other economic factors that point towards the risk profile of an individual are as follows: 

  • Liquidity: A high concern for liquidity will imply a more conservative approach. 
  • Income: Many investors would prefer to have an income flow on all their investments and too preferably guaranteed returns. This again is a conservative approach. 
  • Inflation: A lower concern for inflation means more exposure to debt/ income-oriented investment and less to growth. 
  • Taxation: A high concern for taxation will mean higher exposure to tax-saving, growth and equity-oriented instruments where the incidence of taxation is lower compared to debt/income-oriented instruments. 
  • Volatility: Some investors are very concerned about the loss of capital – that would mean that even a stock portfolio should contain more defensive and largecap stocks - lower on risk and return. 

After having assessed your needs and risk the next step is deciding on an asset allocation plan that shall best serve your needs. Basically, financial assets are equity and debt-oriented. Equity investment can be done through investing directly in stocks of the company or through mutual funds. Whereas investment in debt or fixed income instruments can be done through debt mutual funds, government-backed schemes, bank fixed deposits, etc. An individual with a higher risk appetite can have a higher proportion towards equity and a lower proportion towards debt, moderate risk taker individual can invest half of its assets in equity and half of its in debt and lastly, a conservative investor can invest a higher proportion towards debt and lower proportion towards equity. 

For instance, following table depicts an example of asset allocation: 

Investment Vehicle 

High Risk Taker 

Moderate Risk Taker 

Low Risk Taker 

Equity Instruments 

70% 

50% 

30% 

Debt/Fixed Income Instruments 

30% 

50% 

70% 

 

Once the asset allocation is finalized the next step is selecting the right products under each asset class. After finalizing the list of securities or actual investment plan, the individual should proceed further to implement the same by parking his funds in those investment instruments.  

And lastly, the very important step in the investment process is monitoring and reviewing your plan. It is a critical step to the success of an investment plan as selecting the right securities and going ahead with the right mix of assets. 

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