Analyse your Portfolio

Investor should understand the difference between saving and investment. Saving is just keeping aside some portion from income. Whether that money is just kept idle at home or put anywhere is not important. In investment the money saved is put in any financial asset keeping some flow of regular income in mind or ensuring that money grows at a good rate. Investment serves more objective than saving for any investor.

Money saved/invested today is to be used in future for some purpose. Any investor has to balance between emergency need of money, immediate need of money for expenses and distant expenses need of money. Where and how much to invest should be decided keeping time and liquidity requirement in mind. Safety is the most important thing to review your investment portfolio because if you do not get the required amount of money at the time you require it then investment is of no use. But again safety has to be seen more in perspective of time scale. On a time scale one has to be judicious to decide the level from where return from equity asset would take care of safety as well as help the money grow and multiply also. Most investors interpret SAFETY in a wrong way. Whenever they invest they view that particular investment from safety perspective and then tend to do mistake of investing in safer investment like bank deposit etc. Safety should be interpreted as “ I should get the desired amount of money when I want “ or “ I should not get  lesser amount than what was initially invested i.e no loss of capital “.

Analysing Investment Portfolio:

Each investor’s investment should take care of 3 important things  – cash , income and growth. Cash and Income will broadly fall in Debt category and Growth in Equity category. They follow in the order as mentioned. Two major consideration (1) Till what time (2) How much amount.

Cash – Money in bank account / liquid fund. More to meet certain unexpected requirement, emergency need. Only safety is the consideration and return is not the deciding factor. Time and Amount : Generally 3-6 months of regular expenses plus any planned expenses within 6 months.

Income – More to supplement regular expenses. Main consideration – SAFETY i.e when I require money I get at least minimum what I want (DEBT COMFORT LEVEL). So for this portion more than return factor loss of capital is major consideration. Clients here want some return but not at any loss of capital. Investment could be bank deposit, FMP, short term bond fund, fixed deposit. (1) Time (2) Amount.

Consideration before investment: (1) Till what Time: On time scale look after what time duration Equity and given better return that debt. Historical result says for 3 years and more Equity funds have always given better return than debt funds.  Looking at recent experience of investors, some investors may not be so comfortable with 3 years so may be 4 or 5 years could be his comfort level but not beyond 5 years as historically it has never happened that on a 5 year or plus basis debt fund has given more returns than equity. So time scale could be 3 to 5 years for whole debt investment (cash + income) . So money going for income consideration i.e debt could be anywhere between 2.5 years to 4.5 years.

(2) How much amount: Generally again yardstick could be monthly expenses. So investment in debt fund (FD , FMP , Short term Debt Fund ) could be average monthly expenses X time what is chosen by client. If some major other expenses is planned or falling in between that can be added.  Regarding which scheme again 6 to 12 month: FMP / Ultra Short term, 1 to 2 years – FD or FMP or Short Term debt fund.

Growth : Now anything after taking into account of Debt part ( cash + income ) should be put for growth and that can come only from Equity and related asset class which is PMS, PE, Real Estate Fund etc .

(1) Till what Time: This starts from beyond 3 or 5 years and no final time limit

(2) How much Amount: Look at the outstanding total investment of client as on date. After accounting for cash + income part i.e debt rest all should go to equity. On product specific starting from large cap then to diversified / mid cap then to multicap, index fund  to follow after that. Last to follow would be sector fund, Gold ETF and others.

Analyse Investment Portfolio: Monthly Expenses 100000

Debt Comfort Level
Nos of Months		36	48	60
Total monthly  expenses		3600000	4800000	6000000
Total Investment Portfolio Value		10000000	10000000	10000000
Debt		3600000	4800000	6000000
Equity		6400000	5200000	4000000
Debt		3600000	4800000	6000000
Cash/ liquid (3-6 mth mthly expenses )		600000	600000	600000
FD/FMP/Bk Deposit/ ST Debt Fund		3000000	4200000	5400000
Equity		6400000	5200000	4000000
Large Cap	20%	1280000	1040000	800000
Diversified ( Large + Mid )	20%	1280000	1040000	800000
Mid	10%	640000	520000	400000
Multi Cap ( Large+mid+small )	10%	640000	520000	400000
Gold ETF	10%	640000	520000	400000
Infra	10%	640000	520000	400000
Sector	10%	640000	520000	400000
Index	10%	640000	520000	400000
Total Equity Portion	100%	6400000	5200000	4000000

Some factors to be looked into:

On the age side: One has to consider his time left for retirement. So once that is within 3 or 5 years based on above logic money should move from equity to debt.

Historical facts prove that in long term equity is safer than debt and since money grows by 2-3 times more than what invested in debt extra corpus after 3,5,10, 15 years in fact brings more peace of mind and future safety.

Time Period	Fixed Deposit	HDFC Top 200
3 months	7.25%	17.88%
6 months	7.00%	7.37%
1 year	9.00%	-6.43%
3 years	8.75%	29.58%
5 years	9.00%	14.02%
7 years	8.00%	21.24%
10 years	8.75%	28.61%
15 years	9.82%	21.91%