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Balancing your portfolio: Here's how to do it!

Balancing your portfolio is a strategic move to make the most of your investments. It helps you maintain the desired asset allocation and minimize risks. It is good to balance your portfolio at regular intervals to stay on track of your investment goals and ensure that all your eggs are not in a single basket. Portfolio balancing and management actually enables you to benefit from your investments.

 Let’s take a look at the steps that you must follow to balance your portfolio:

Know your investment objectives:

The first step is to identify your risk appetite, investment horizon and financial goals. These will serve as a benchmark when you formulate your asset allocation plan and make changes to your investment strategy.

Have a plan:

The next step is to chalk out an asset allocation plan. It will help you to maintain the desired risk and returns over a specific period of time. Consider your income, your investment goals and your current portfolio while formulating the plan. Decide how much you want to invest in each type of asset. But steer clear of following someone else’s asset allocation plan blindly as that may not be the ideal plan for you. While there is no single method to ensure a perfect asset allocation plan, it’s always advisable that you make one before investing.

Assess the current investments:

Make note of your existing investments in stocks, mutual funds, bonds, etc. A thorough assessment can help you to identify the gaps between your financial goals and investments. Based on the evaluation, you can make suitable adjustments to your portfolio.

Align your portfolio with your plan:

Clear out the investments that do not align with your asset allocation plan or do not match your risk-reward profile. If you are unsure about your decision, you can also speak to an investment advisor.

Consider tax and exit implications:

Exiting investments early may have tax implications. While you may need to pay an exit load of around 1% to redeem an equity mutual fund within one year of investment; the exit load for debt mutual funds varies depending on the scheme. Furthermore, you must also consider the tax benefits you can get from each type of investment. For instance, if you choose to invest in ELSS funds, you can avail tax deductions of Rs. 150,000 per annum, under Section 80C. On equity investments exceeding one financial year, you have to pay a Long-term Capital Gains or LTCG tax of 10%, on returns of over Rs. 100,000 Therefore, you must carefully assess, both exit load costs and tax implications ­before you make any decisions. It is better to hive-off investments that do not have any tax implications.

Undertake reviews:

Make it a point to review your portfolio every quarter to ensure that your portfolio is aligned with the asset allocation plan. Periodic reviews can also help you identify the assets that are not performing very well.

Once you implement a system in place, it will become easier to track your investments and portfolio. It will make you realize your investment goals and help you make decisions with increased confidence. Remember that the risk-reward profile and the investment goals do not remain a constant for any investor. Therefore, balancing your portfolio cannot be a one-time affair. Making small adjustments with time will help you to maintain an appropriate portfolio that is perfectly aligned to your needs. The steps may seem a bit complicated at first glance, but once you get into the habit, you will find it easy.

So, why wait? Open your trading account today and begin your investment journey.


Disclaimer: The contents herein mentioned are solely for informational purpose and shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon.

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