Simplify Your Portfolio!

When you decide to build your portfolio, the first step is to find out what your financial goals and requirements are. The next step is to categorize them into short and long term goals.  Requirements like buying a laptop, or going for a vacation abroad etc should also be included. Once you are done with them, next step is choosing the avenues where you want your funds to see your funds grow.

It is important to categorize your fund choices in the form of core funds and satellite funds. Your core funds should comprise of large and large and mid cap funds, whereas your satellite funds should comprise of multi cap, mid cap and small cap funds. Make sure that your core funds are invested with 80% of your investments and the remaining 20% in satellite funds.

Once you have given a structure to your portfolio and have commenced investing in the equity-based funds through the Systematic Investment Plans (SIPs), make sure at least after a year you try re balancing or evaluate your funds’ performance. Slight changes in the fund’s performance especially in the equities sector, should not affect you in the short term. Since, these changes are bound to be corrected over a period of time. But if you feel that your fund is deviating from its objective of what it initially was, exiting the fund is advised. In situations where your fund manager seems to be taking a lot of risk is also not healthy for your investments. Since, you can get lucky once or twice but not all times.  Risking all your investments for just achieving a few jumps in your returns is not a very wise decision.

After you plan to invest a certain amount in any respective fund, it is best if you can slowly try to increase your stipulated investments into a particular fund that has the potential of performing well in the future. The only mantra towards building a strong portfolio is to save at least 40-50% of your savings. Set aside this amount religiously and try to cut down on unreasonable expenditures as this cut down can give you best returns in future. Getting into a debt of a personal loan or a home loan etc just to bridge the gap between your goal and your existing finances will only increase the burden on your finances which is definitely not desirable.

Opting for fixed income instruments, as a young investor, is something that is not advised and sought after. Since you have the potential of climbing up your career ladder, exposing yourself to manageable risk is what is advised. Your monthly income comes from your salary if you are an employee, and profits if you are a self employed. Fixed income instruments are basically for those people who are nearing retirement or are already leading a post retirement period.

If you have dependents for whom you are safeguarding their future for, it best to take a life insurance policy. Ensure that your insurance cover provides you with adequate risk protection more than anything else. Go for a term cover that has the only feature of providing a life cover without any amount being invested in Mutual funds. Many investors make a mistake of investing in insurance policies that invest in mutual funds. There is obviously no problem if the markets perform well. But if the markets crash, you risk on losing out everything. If you currently have an insurance policy for which you not just paying for risk protection but various other functions as well, it is best if you stop paying the premium once the tenor is over and re-consider its presence in your portfolio.