MF Expert
Hemant Rustagi
Chief Executive Officer, Wiseinvest Pvt Ltd
An ever-expanding investment universe provides a number of interesting, effective and flexible investment options for investors with different risk profiles. However, one must follow the right selection process to get the best out of this situation. Every investor must understand that selection of investment option should be the last step in the selection process. The process must begin with establishing investment objectives. Assigning a time horizon to each of these goals helps in determining an ideal asset allocation. While equities should be the mainstay of a long-term portfolio, debt and debt-related instruments should be at the forefront of a short-term portfolio. Hybrid options can play a significant role in achieving medium-term goals.
In reality, a number of factors impact the final outcome of an investor’s investment process over different time periods. Hence, one must follow certain principles that not only help at the start of the process but also keep the portfolio on track during the defined time horizon. Here are some of the priority areas to ensure sustained investment success.
Focus on What You Want to Achieve
As an investor, you must avoid following a haphazard investment approach as it may compel you to make investment decisions depending on how different asset classes behave at certain points. Besides, it can make you miss out on opportunities in the market. Therefore, keep your focus on the bigger picture at the start by establishing your goals to be achieved over short, medium and long-term horizons. A goal-based investment process propagates budgeting, risk management and asset allocation model that helps you create the right balance between risk and reward.
Remain Committed to Your Time Horizon
Once a time horizon is assigned to a goal, you must remain committed to it irrespective of how the market behaves and continue your investment process. This approach not only helps you tackle the volatility but also allows you to benefit from averaging over time.
Work Closely with Your Advisor
Today, a lot of information is available on various investment options and strategies to invest in them through different mediums. Therefore, you must always be open to absorb this knowledge and use it in your investment process. If you find it overwhelming, take help of an advisor. It helps if you listen to your advisor as it allows you to understand the complexities of the investment world. Remember, unwillingness to do so can make it difficult for you to adapt to the ever-changing investment and economic environment.
Be Flexible
While investment is an ongoing process, there is no straight path to investment success. Therefore, your investment process as well as options must have the flexibility required to rebalance your portfolio in line with changes in your own circumstances as well as in the economic and political environment. Also, be prepared to tackle the challenge of non-performance of some of the investments in your portfolio. Although monitoring the performance holds the key to long-term investment success, don’t get tempted to make frequent changes just because you have the flexibility to do so. Besides, avoid discussing your portfolio with all and sundry as conflicting views can make you lose your focus and compel you to compromise your financial future.
Plan Your Tax Investments Well
To get the best out of your tax savings investments, you must integrate them into your overall investment program. It not only allows you to choose options in line with pre-decided asset allocation but also avoids investing haphazardly at the fag-end of the year. This strategy creates place for options like equitylinked savings schemes (ELSS) of mutual funds. Being equityoriented funds, these have the potential to generate positive real rate of return. Another notable feature is a lock-in period of three years, which is the shortest amongst tax savings instruments.