What trade data tells you about India’s economy

What trade data tells you about India’s economy

Numbers have a story to tell. All over the world, financial markets rely on statistics to build a narrative. 

Here is a way you can build one part of the India story: 

• Exports fall: India reported weakest exports at $ 21.3bn in nearly five years. However, analysts also highlight that Korea’s exports fell to a six-year low while Chinese exports also fell significantly. These two are major exporting economies. The level of exports indicates that the global demand for goods and services is weak. 

• Oil prices fall helps: The dramatic slump in the international crude oil prices has resulted in the value of Indian oil imports dropping to $7.4bn in August 2015 from $12.5bn in the year-ago period. This is a significant saving and helps India maintain the current account balance. Effectively, it saves the rupee from falling sharply. 

• Gold imports surge: Ahead of the festive season, consumers see an opportunity to buy gold as prices remain weak. At $5bn, gold imports surged two and a half times over last year. Indians are effectively back in the gold market. 

• Non-oil, non-gold imports: These are imports of agriculture, electronics or capital goods. Such imports dipped marginally to $21.4bn over last year. An analysis of this data by Yes bank suggests that fertilizer imports rose 80% over last year and were a major contributor. 

• What does this data mean: Sluggish exports mean that the global demand remained weak. Had it not been for falling oil prices, India would have witnessed a rising current account deficit (CAD) and the rupee would have gone down like currencies in other Asian markets. The CAD is the money India owes the world in foreign exchange. 

Happy  Investing

Source:Yahoofinance.com

10 things you must have on your office desk

10 things you must have on your office desk

Do you spend most of your time in office? Each working space has its own personality and each work desk defines the person working on it. Office spaces cannot be a dull place if you have familiar things around you that can cheer your mind. Did you know that people can judge you based on the things you have on your desk? 

Here is a list of few basic things you must have on your desk at all times:

1. Water bottle: Work can be very distracting, especially when you have daily deadlines. However, it is important to drink plenty of water to keep yourself hydrated, even if it means you have to visit the restroom frequently.

2. Headphones: No matter what shift you’re in, headphones are a must-have. Whether you want to ignore some irritating colleagues or pleasure some music, all you have to do is just plug your headphones and zone out. If you want to focus on work, just stick them in your ears because it is a sign for ‘do not disturb’.

3. A plant: Do you work in an office with closed doors and windows powered by air conditioning? Plants are known to improve the quality of air and even your desk space. Try succulent plants like cacti and aloe. Many studies have proved that a plant can brighten your mood and happiness.

4. Pen stand: You can never have enough stationery. A pencil stand filled with colourful pens and pencils is a basic necessary. Whether it’s brainstorming or making quick notes, a handy pencil or pen can be very helpful through the day.

5. Something to play with: Taking breaks can actually improve your productivity. So don’t hesitate to keep a few things around to play with when you want to take those little breaks. 

6. Snacks: Snacking is a good break from work and keeps your blood sugar levels up throughout the day. Choose what you eat wisely!

7. Sticky notes: Do you belong to the group of forgetful people? Then only a stack of sticky notes can save you at work. Writing deadlines on the sticky notes will remind you to stay focused and finish your work on time.

8. Notebook: Make sure you note the important points discussed in meetings in a notebook. You should also keep a tab on your daily work routine and check the status of your work goals when it’s recorded in a book.

9. Mints: Would you like to be that social butterfly who is a part of most team gatherings in and outside the office? Then you will have to make many conversations with your colleagues, even if you do not  like them. Gums and mints can serve an essential for last minute meetings too.

10. Hand Sanitizer: Your keyboard is not as clean as you think it is. There is so much of bacteria and germs on the device that you cannot see. Keep your hand sanitizers at your desk at all times and use it throughout the day.

Happy investing

Source:Yahoofinance.com

How sunlight can transform our lives

How sunlight can transform our lives

For years, people spoke of the abundant sunlight in India and the potential to produce solar power. KPMG, a global consulting firm, announced on Monday that the cost of producing solar power per unit (kW) in India is now lower than the 80% power produced in India by burning coal.

Solar power could now cost Rs 4.63 per unit against close to Rs 5 per unit of thermal power of a coal-based plant. This price is based on the record low bid won by US-based SunEdison’s for a contract to sell 500 megawatts of solar energy in Andhra Pradesh.

What this means:

Solar energy will scale up significantly, reaching a 12.5% market penetration by 2025. This sends out hints that solar energy will likely be a major source of energy in the next few years. It will surely have an impact on the coal price, cell efficiency and resource consumption patterns of India. In simple terms, we will have sunlight powering our homes.

Push back from coal:

The coal sector will definitely fall under immense pressure due to the reduction in solar energy prices. There could be a complete change in the consumption pattern of solar energy in India in the next few years.  Around 45 to 50gigawatts of solar power will be installed. This means the coal consumption will be reduced to 7% in the power sector of India. In order to cope up with the challenging situation, the quality, efficiency and flexibility of coal need to be taken care of.  

Upgraded technology:

Presently, India has over 20 million pump sets that are inefficient and receive a high government subsidy. However, the use of upgraded solar power pump sets will boost 1,50,000 agricultural connections by 2020 and 3,00,000 connections by 2025, KPMG report states.  Lower solar energy costs could reduce the subsidy burden of the government and offer better day power to farmers soon.  In short, the total number of solar-powered pump sets will shoot up to 3.8million in 2025.

A clean form of energy in India:

Reduction in coal consumption will preserve the forest environment and create a direct-to-home power consumption pattern via solar rooftop energy storage in rural areas. India’s energy self-reliance will efficiently boost the manufacturing of electric vehicles eventually.

Cell efficiency and demand for solar inverters:

There has been a satisfactory improvement in the efficiency of solar cells by 0.5%. Prices of solar inverters will also reduce along with lower solar energy prices. Advanced semiconductors and better circuit design could be the two major factors for solar inverters to get cheaper.

Usage of new cell printing technologies such as micro-inverters will surely increase the power output of solar panels.  The solar energy sector may soon use organic materials and film technology that can reduce the manufacturing costs of such panels.

Solar House:

The ‘Solar House’ concept is a household condition when the entire power needs are fulfilled by rooftops, energy storage and on-site solar powers. In fact, India has the largest amount of rooftop resources that can efficiently meet the household energy requirements in a sustainable and economic manner, as per the KPMG report. Solar rooftop consumption will largely be consumed by the residential, industrial and commercial sectors. In fact, the rooftop adoption rate by households will likely increase up to 3.5%, which means its potential will shoot up to 2GW by 2020.

Happy Investing

Source:Yahoofinance.com

6 Tips to Maximize Your Rental Returns

6 Tips to Maximize Your Rental Returns

According to the news published by a popular newspaper, rental returns in India are among the lowest globally. But if one takes into account the capital appreciation, the returns surge to over 20 per cent compounded annually - which is among the highest globally.

But today, the situation is definitely changing. Owners and tenants are looking out for wise options. Here are some tips and points landlords can consider to help maximize rental returns and thus keep tenants happy:

Target the right base of potential tenants

Targeting the right audience is important. Most of the Grade 1 and 2 cities or the so-called IT cities have areas concentrated with these companies and other factories. Families and individuals who want to avoid or minimize travel look for houses in these areas. Investing in these areas can help reap big benefits. Owning a property near colleges and business areas can be very attractive to students and young professionals.

Consider offering fully furnished property to tenant for better returns

There are tenants who look for houses on a short-term basis. Providing a fully or partially furnished house can attract such customers easily. Tenants will be willing to pay more for a house with a bed, couch, television, washing machine, a wardrobe and a gas stove, especially when they do not plan to settle in the city for long. Providing a maid too can help to increase your rental income considerably.

Recently, a newly married couple was forced to move to Bangalore for a short span of 6 months. Since they were not in a position to start from scratch, they were in a dilemma. Through a few acquaintances, they managed to find a fully furnished house, including a maid, which was perfect for their requirement. Instead of paying Rs 15,000 for just a house, they paid Rs 21, 000 and got all the amenities they wanted.

Woo the customer with additional attractions

Wireless internet is a big attraction these days. Air conditioners are another attraction or a necessity especially in places like Chennai. Tenants will definitely fall for it because otherwise they would have to shell out extra for an air conditioner. The rent can thus be increased by around Rs 1,500-2,000 for these added attractions.

Even single rooms can generate good rental returns

Renting out single rooms is yet another way to increase your rental returns. If the room is comparatively large, you can allow double occupancy. And the house can be furnished with a few amenities as mentioned above. This will be an attraction for working men and women, especially those fresh from college and who have just moved into a new city. By charging each individual separately, landlords stand a chance of increasing their rental returns. If a 3BHK flat is rented out for Rs 18, 000 for a family, giving out each bedroom for double occupancy, charging Rs 4,000 per person, can bring in a monthly income of Rs 24, 000.

Safe and covered parking lots can fetch you better rental

Providing safe and covered parking space within the compound has become necessary and scarce. Making provisions for this gives an added reason to increase the rent.

Also focus on other important aspects

A lot of people go in for aesthetics. A newly painted house definitely can increase the value of a property. Using neutral shades will be helpful. A few potted plants on balconies or in open spaces can make the place look more beautiful.

Storage space is another bonus. Converting a Pooja room to a creative storage area or providing under stairs spaces with a cupboard can earn you extra points.

Fortune favours the brave. To maximize rental returns, one should dare to offer a point of difference in the rental property. Take every available opportunity to increase rental returns with minimum and wise investments. A proactive approach and a bit of initiative go a long way. Choose what is best for your property and what fits into your budget and see the money roll in.

Happy Investing

Source:Yahoofinance.com

Things you must know about chit funds

Things you must know about chit funds

Chit funds are one of the most popular avenues to park your money in India. In the midst of all this, financial advisors do believe that chit funds are one of the good investments. From homemakers to successful businessmen, you will find a variety of people shelving their funds in a proper chit fund organization.

How it works: As an investor, you will have to pay a specific amount of money at regular intervals, for a certain period of time. Under this form of investment, the investor enters into an agreement with a specified number of people who will equally contribute the same amount of money every month.  And each person shall in his turn, by lucky draw or auction, win a certain sum of money.

Types of chit funds: There are three kinds of chit fund entities: a private chit fund organization, like Sriram Chits, which is registered to operate under the Chit Fund Act 1982; a government-run chit fund, example Kerala State Financial Enterprises and an unorganized chit fund which is a form of saving scheme among family, friends, and neighbours.

Purpose: Chit funds are one of the smartest ways of investing. It helps you convert small savings into a lump sum within a short period of time. The liquidity nature of Chit fund is a liquid investment in which you can pull out cash in case of any emergency at any time. Otherwise, it is considered as a form of recurring deposit. Middle-income groups are mostly interested in this form of investment.

Risk factor: Since chit funds are considered as one of the most preferred for the savings-cum-borrowing instrument, it is quite risky if you don’t choose your chit fund organization correctly. Hence, if you plan to invest in chit funds, make sure you are doing it the right way.

The best way to find out if you are investing with a legal organization is to thoroughly check your agreement to find out if it has been filed with the registrar of chits.

Tax-free: Returns from registered chit funds can range between 7-10% per annum when held until its maturity. From unorganized entities, you can expect about 10% returns per annum. Dividends received from chit fund companies are completely tax-free and need not be declared while filing for tax returns.

Research: There are a number of chit funds that have disappeared after taking people’s money. Before you excitedly invest your money in chit funds, do a detailed research on the companies you’d like to park your money in. It’s always safe to go with reputed organizations.  Also, every company that is operating a chit fund business must have the word chit, Kuri or chitty as a part of its name.

Rules: Chit fund companies cannot engage in trading or any other activities like real estate investments, etc. These companies have to operate only as chit fund companies. For managing a chit, a company or promoter can charge up to 5% of the bid or auction value as commission. The rest of the amount will be equally divided among the members of the chit.

Happy investing

Source:Yahoofinance.com

How to create a big retirement corpus?

How to create a big retirement corpus?

No one dream plan can make you retire reach. It is a step by step approach that works for your wealth accumulation.

You wish to create a big retirement corpus over a long period of time. You know that serious wealth creation is a multi decade, multi generational goal. So what are the very important steps that are needed to achieve that wealth creation goal?

Let me tell you some of the very important ones:

1.Learn and understand how compounding works. If you are a parent, teach it to your kid. If this is the only thing that you know (or teach your kid), your life is on track.

2.Learn to postpone consumption. The sheer act of immediate appeasement is to be just given up. Postpone by a day, week, month or year depending upon the ‘urge’ and the amount involved. The more you learn the art of deferring, the stronger your mind and body are. Try teaching this to your kid. Start at age 2. Tell them the benefits of waiting. As important as compounding.

3.Start saving and investing, NOW. When you learn the power of compounding, you will realize the power of ‘n’. So start as soon as possible. ‘n’ is used more as time, and not really as the number of times compounding…big huge difference.

4.Set savings / investing goals and live frugally. Once you learn to live frugally the sheer joy of seeing your money growing will push you to invest more. Make sure that the goals are reasonable, and you have the satisfaction of achieving the goals.

5.Look at market returns over long periods. Look at the US markets, Indian markets and find out the various asset classes – equities (large cap, mid cap, multi cap) funds, debt products (PPF), estimate returns over a 30 year return. Understanding yourself, and the products is very essential for a good corpus creation.

6.Manage risk. If your daughter is 8 years of age and you are investing for her higher education, remember the whole event is 13 years away…and the risk of not having enough money is as real as the volatility which worries you. So there has to be a lot of equity in your portfolio, and of course it can (and ha welcome to volatility too!!)

7.Diversify smartly. Across industries, geographies, business groups, etc. If you are a mutual fund investor across large cap, mid cap, multi cap, hybrid funds, and please invest to a plan. Creating your ‘why of investing’ and a ‘philosophy of investing’ are both essential for you to create a sensible amount of wealth.

8.Have patience, and remember people have described the stock market is a place which transfers the money from the active trader to the patient investor. Remember that the power of compounding teaches you that most of the big returns are back ended. Maintaining a long term perspective and slowly investing your money on a regular basis is a nice rout to wealth creation. In Colgate an investment of Rs. 1250 in 1977 led to dividends of about Rs. 100,000 in 2015. Just the power of compounding and the ability to reinvest the Rs. 100,000 ensures higher compounding.

9.Trying to time the market (the opposite of point no. 8) does not work for most of us. Read books on investing but not the magazines, watching television is corrupting, and does not help. Stay away from television if you want to be a serious investor.

10.Be careful about the taxes that you pay. If you can get 8-9% per annum tax free in debt instruments you are doing great. PPF is one instrument which does it for you. You could even choose to be in Growth plans of debt funds and pay tax after a very long period – say 15 years. This amazingly improves your power of compounding and thus the growth of the money. So even if you want to be in debt choose national savings certificates, growth option of debt schemes, ppf, etc. and pay tax back ended instead of paying it annually. Remember 60 years and 80 years are important in your tax life. You move on to a lower tax slab..so plan your investing and your taxes accordingly.


11.Do not over pay on loads, advisor fees, management fee – that can hurt. Keep away from bank advisors and tied advisors whose job is to sell you schemes that they represent. If you have learnt enough about investing, you can do it yourself. If you are not confident, go to a good advisor but pay on time basis and not on AUM basis – unless it is a one-time fee. 12.Beware of the hot hands and hot sectors. If you do not have a good philosophy of investing, there is a chance that you will get carried away by ‘today’s best buy’ or ‘top performing fund’ for the month and such challenges…

Happy investing

Source:Moneycontrol.com

BASICS OF INVESTING

BASICS OF INVESTING

Your returns as an investor depend not only on the performance delivered by your chosen asset class but also by the taxes and expenses that you incur in the transaction. Two factors that an investor must consider before redeeming are exit loads and capital gains tax as per Income Tax Act, 1961.

1. Exit load: Exit Load is an amount charged by mutual fund schemes on redemption of investments before a specified period. It is charged as a percentage of the Net Asset Value (NAV) as on the date of redemption. Such exit load could range from 1% to even more. For example, let’s say a scheme charges an exit load of 1% on redemption of investment within one year. Suppose the NAV of the scheme is `100 on the date of your redemption, you will get only `99 on your units after application of exit load, if redeemed within 1 year. Exit Load is imposed in order to discourage short term investing.

2. Taxation: All market related investment products are subject to capital gains tax owing to appreciation in their prices at the time of sale/redemption by an investor. Depending on the holding period, they are classified as long term or short term as depicted below. Long term capital gains typically enjoy lower tax than short term capital gains.

                                  Short term capital gains     Long term capital gains

                                             Period                Tax rate                         Period               Tax rate gains

Period Tax rate Period Tax rate

Equity oriented mutual fund    Up to 1 year               15%                        More than 1 year         Nil 

schemes

Other than equity oriented     Up to 3 years     Gains added to taxable     More than 3 years      20% after 

schemes or liquid schemes                                        income and taxed at                                           providing 

                                                                   applicable slab rate                                            Indexation

Note: Surcharge at 12% to be levied in case of individual/ HUF unit holders where their income exceeds Rs 1 crore. Education Cess at 3% will continue to apply on tax plus surcharge. Illustration valid for domestic (resident) investor.

CUMULATIVE IMPACT OF EXIT LOAD & CAPITAL GAINS TAX ON RETURNS

(A) Equity Mutual Fund :

The following illustration shows how investors’ returns are impacted by exit load and capital gains tax. Let us take the example of Mr Niveshak who invests Rs.1 lakh in an equity mutual fund scheme. Eleven months later, let us say the investment value has increased to Rs 115,000. Mr Niveshak planned redeeming his investments considering the appreciation.

Unfortunately, returns from the Scheme reduced after calculating the impact post exit load (assuming exit load period of 1 year) and short term capital gains tax. Mr Niveshak’s investment return of 15% reduced to 11.71% owing to the impact of exit load and taxation. This loss can be minimised by holding investments for the long term and if such favourable market conditions persist. Had the investor held on to his investments for more than a year his returns would have been 15%. (Assuming no change in market condition).

ILLUSTRATION of Mr Niveshak’s investment gains

Early Exit Long Term Investing

S.N.      Category                                                     1 year or Below                                               Above 1 year

A       Amount invested                           ` 1,00,000                                         ` 1,00,000

B       Gross Return                                       15%                                                 15%

C       Amount Before Exit Load              ` 1,15,000                                          ` 1,15,000

D       Exit Load Applicable                            1%                                             Not Applicable

E       Amount Post Exit Load                 ` 1,13,850                                           ` 1,15,000

F       STCG Rate                                       15.45%                                             Long Term - Nill

G      STCG                                             ` 2,140                                                Not Applicable

H      Net Amount After Tax                    ` 1,11,710                                           ` 1,15,000

I        Net Investment return                        11.71%                                              15.00%

BASICS OF INVESTING

FORMULAE : E = C x (100%-D), G = F x (E-A), H = E – G, I = (H-A)/A

Short Term Capital Gains Tax rate is as per tax slab applicable for the financial year 2016. For illustrative purpose to explain the impact of exit load and capital gains tax and benefits of investing for long term. There is no assurance or guarantee of returns on investments in mutual funds. 

Investments in mutual funds are subject to market and various other risks and it is advisable to consult with financial advisor before investing. Securities Transaction tax has been ignored for the purpose of illustration. Illustration valid for domestic (resident) investor

(B) Non-Equity Mutual Fund (Other than liquid schemes)

Let’s say Mr. Niveshak invests Rs.1 lakh in a debt mutual fund scheme. One year later, let us say the investment value has increased by 12% CAGR (Compounded annual growth rate). Mr Niveshak considered redeeming his investments owing to good returns from the Scheme. Unfortunately, returns from the Scheme reduced from 12% to 7.52% owing to the impact of exit load and taxation. This loss can be minimised by holding investments for the long term and if such favourable market conditions persist.

Now, if Mr Niveshak had held on to his investments for the long term (more than 3 years), he would not have incurred exit load (assuming exit load period of 15 month) and he would have paid lower capital gains tax post indexation. In addition, long term investing could be beneficial with an opportunity for increase in scheme NAV. Assuming investments held for just above 3 years and a CAGR of 12%, his Net investment return would be 11.46%.

ILLUSTRATION of Mr Niveshak’s investment gains

Early Exit Long Term Investing

S.N.        Category                                                       (say after 12 months)                                     (Say above 3 years)

A         Amount Invested                                   1,00,000                                          1,00,000

B         Gross return                                           12.00%                                             40.49%

            (CAGR 12%) 

C         Amount Before Exit Load                      1,12,000                                          1,40,492

D         Exit Load Applicable                                  1%                                            Not Applicable

E         Amount Post Exit Load                         1,10,880                                           1,40,492

F        Tax Rate on Gains                                     30.90%                                     20% with Indexation*

G       Tax Applicable                                           3,362                                               2,009

H       Net Amount After Tax                             1,07,518                                           1,38,483

I        Net Return (CAGR)                                     7.52%                                              11.46%

FORMULAE : E = C x (100%-D), G = F x (E-A), H = E – G, I = (H-A)/A

* Assuming investment in FY 11-12 and Redemption in FY 14-15

Cost Inflation Index = 785 for FY 11-12 and 1024 for FY 14-15

Indexed Cost of Capital = (1024/785)*100000 = Rs 130446

Tax on Gains = (140492-130446)*20% = Rs 2009

^Short Term Capital Gains Tax rate is as per tax slab applicable for the financial year 2016. This is assuming the investor falls in the highest tax slab. For illustrative purpose to explain the impact of exit load and capital gains tax and benefits of investing for long term. There is no assurance or guarantee of returns on investments in mutual funds. 

Investments in mutual funds are subject to market and various other risks and it is advisable to consult with financial advisor before investing. Illustration valid for domestic (resident) investor.

INVESTING FOR THE LONG TERM IS BENEFICIAL

Happy Investing

Plan your savings bank interest well to avoid tax

Plan your savings bank interest well to avoid tax

Interest on saving bank account has the tax deduction of Rs 10000 per year. This can be used to reduce the tax liability.

One area of taxation that often garners low attention is that of the taxation of the interest on the savings bank account. The benefit here in absolute terms is small but it can have some implications for the financial planning because saving on tax here can be done effectively and it does not require a lot of effort too. This can lead to saving of time and energy for the individual. One needs to carefully look at the position that one is facing so that some changes can be made if required. Here is a detailed look at the entire issue and how this can be handled.

Taxability of income

When there is money present in the savings bank account then this will earn interest. The interest rates on savings bank accounts have been freed so banks can set the rates that they want to. Most of the public sector banks still have a rate of 4 per cent while some private sector banks have higher rates that are offered to their customers. This higher rate comes in two slabs. If the balance in the account crosses a certain threshold which in most cases is around Rs 1 lakh then the highest rate comes into play while balances below this figure earns a slightly lower rate which is still higher than the 4 per cent mark. In terms of taxation of the savings bank interest the income earned is taxable and hence the figure here has to be included in the total taxable income of the individual.

Deduction

There is a deduction that is available for the income that is earned from the savings bank account and this allows for a deduction upto Rs 10,000 in a financial year for an individual. What this means is that income upto Rs 10,000 will be tax free and hence there is no tax to be paid on such an income as the amount would be reduced from the total savings bank interest earned. Let us take a couple of examples to understand the situation. If the total savings bank interest earned in the year is say Rs 5,600 then this entire amount would not be included in the calculation of the taxable income.

On the other hand if the savings bank interest is say Rs 18,700 then Rs 10,000 would be deducted from this and only the remaining Rs 8,700 would be included in the taxable income of the individual.

Full use

One of the mistakes that a lot of people make in the entire process is that they constantly try and earn a higher return by moving funds to fixed deposits but they miss out on this specific benefit. The best way to ensure that the benefit is taken is by putting your money into one of the banks where they are offering a higher rate of interest. This is actually like a fixed deposit rate but still the first Rs 10,000 is not taxable which pushes up the returns on the investment. The amount here is small but for someone in the mid income category it is a benefit that should not be missed. The mixture of the higher rate of return along with the deduction can ensure that there is some amount that has a higher yield and a tax benefit also. For someone in the higher tax bracket the pre tax rate that is covered by this deduction becomes more than the fixed deposit rate. This gives rise to a situation wherein they would have been better off if they had done nothing rather than rush around trying to earn higher returns.

Happy investing

Source:Moneycontrol.com

Wealth builder

Wealth builder

Strategies to Build Investment Portfolio in 2016

Strategies to Build Investment Portfolio in 2016

The investing strategies for 2016 will be related to building of investment portfolio. We would like our readers to know the importance of building a good portfolio for best investment management. There is a big correlation between the effectiveness of your portfolio and your investment goal. If you have decided that you want at least 12% return p.a. on your investment over a period of 5 years then by seeing the composition of your portfolio an expert can estimate that whether you are going to achieve your goal or not. So we will request our readers to start giving equal importance to your total portfolio same a what you give to every individual shares you buy. There is more to building a solid investment portfolio than just picking good shares and bonds.

The investment strategies for 2016 should start with consideration that you are going to manage your portfolio same as your wardrobe. It may be possible that you have top class fashion clothings in your closet but this is not enough. All individual clothes should compliment other clothes to give a good get-up. Investment portfolio is also the same.

In this article we will discuss several tips of designing a good investment portfolio that matches your goals. We will give your five essential strategies required to be considered for building a great investment portfolio.

BUILDING A TAILOR MADE INVESTMENT PORTFOLIO

Investment portfolio is like a designer wear, they are tailor made as per your body-shape and personality. Similarly your investment portfolio should fit your goal and risk-taking capability.

Investing Strategy No (1): Building a porfolio as per your goal

It may be possible that you are investing with a goal for your child’s future, or for your retirement, or for your dream house etc. Before starting to build your investment portfolio, setting up goals gives very important information required to plan a good investment strategy. Your goals will basically answer three important question:

i) How much money you need?

ii) When you will need this money?

iii) What level of returns (8%, 10% or 12% ..) is required to meet your goals?

The less time you have in your hand the more difficult it is to get high returns. Lesser investing time (< 3 years) means more focus on protecting the capital than generating higher returns.

Investing Strategy No (2): How to diversify your investment?

Till you become an expert investor it is very important for people to save your invested money from the wrath of investment risks. This can be easily done by diversifying your investment portfolio. We think that the investing strategies related to portfolio diversification must be known to all investors. Let us understand an easy to implement rule of thumb related to investment diversification (related to retirement planning).

TAKE YOUR AGE AS YOUR GUIDE

For example if your age is say 35 years, it means 35% of your portfolio should consist of debt linked assets (bonds, deposits, debt linked mutual funds etc) and balance 65% into stocks and equity linked mutual funds. And when we are talking about shares, again diversify based on your age, 35% in large cap stocks, balance 65% on mid caps and small cap stocks.

TRY TO ANSWER SOME KEY QUESTION ABOUT YOUR PRESENT HOLDINGS

It may be possible that you remember all stocks you presently hold in your portfolio but it is important that you should answer some key questions about your holdings.

Investing Strategy No (3): Realize how your individual shares perform as a portfolio?

When market is upbeat you will not realize the importance of effect of individual shares on your total portfolio. But when the market starts to dip you will start realising the necessity of knowing the characteristics of individual shares. Try to categorize your portfolio on basis of the below questions, it will give your great insights about your investments:

i) What is the average return of your total portfolio?

ii) What constitutes your core investment holdings? (like which shares, deposits..)

iii) Is your portfolio well diversified? (like are you holding shares of only few sectors..)

OBSERVE AND MONITOR YOUR INVESTMENTS

After you have answered questions about your goal, need of investment diversification and your present share holding pattern, it becomes essential to answer another important question. A real good answer of this question is important in building a good investment strategy for 2011

Investing Strategy No (4): Does your current portfolio compliment your investment goals?

You may be having some excellent shares in your portfolio but are they good enough to support your goals during bad financial weather? The objective is that even in bad times your investment portfolio should be strong enough to meet your investment goals. Try to categorize your investment holdings on basis of questions asked below:

i) Are your holding subjected to tax when you decide to redeem?

(like debt linked investments)

ii) Are you owning too many large cap stocks which are growing too slowly?

(often large cap stocks become complacent and their growth prospects become feeble)

iii) Do you know about your core sector that is going to contribute maximum to your goal?

(try to keep yourself updated with the news related to this sector, this way you can afford to put money in this sector as compared to other)

To conclude, Investment strategies for 2016 should be more focused on building a good investment portfolio. Your portfolio should be well diversified and try to fill your portfolio with value stocks

Happy Investing

Source:Saralgyan