With a view to securing safe and worry-free future, Investors need to understand the nuances of strategic allocation of their investible surplus by tactical investments in tune with the dynamic market changes from time to time. The ultimate objective of financial portfolio management is to derive a gain in the capital value of investment and also periodically get reasonable returns better than Bank interest rates and inflation rate. . After all, building a financial Portfolio is to invest in a range of assets with no risk category (like Bank deposits) to a reasonable class risk (like Equity shares), with good returns. Everyone knows that the return is directly proportional to risk.
It is a common knowledge that with the investible surplus money on hand, one should prudently allocate the funds in diverse assets- both physical and financial, meaning distributing the investment amount across various asset classes such as Equity, debt, Bank and post office deposits, Mutual funds, Insurance, debentures apart from gold, real estate, antiques etc., Most important feature of such an exercise is to be specific on the expected returns, risk appetite and the time horizon which will decide the security selection and the time of entry and exit.
- Diversification reduces risk arising on account of volatility.
- Market conditions may lead to one particular asset class to register appreciation denting another class of asset. So there will be built in balancing.
- Normally when Equity market is subdued and dull with corporate results being not so encouraging, debt market or bond prices may appreciate.
- Similarly when gold prices appreciate equities may take a hit
- Each asset class has some merits of its own. Some score on returns, some on safety, some on tax benefit, some on liquidity etc., So a mixed portfolio will help.
- Equities offer highest possible returns over a long term, fixed Income instruments offer stability and certainty. Equity part of the Portfolio will generate good returns and debt with stabile income.
- While investing a small percentage of it needs to be kept as cash in banks, some in short-term deposits to meet unexpected contingencies and balance in medium and long term.
- Parking emergency fund in equity is not advisable as it may sometimes lead a loss.
- You need to watch the value of investments periodically and shuffle them, swap them in case of need keeping the market value, liquidity needs etc., A good mix of 50:50 % in equity and debt may be tried initially and then suitable changes be made subsequently.
- Prudent Investor will spend time to study the market constantly and take wise decisions.
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