Smart Investing Tips: The Sensex touched a low in March due to the Corona epidemic and lockdown, and has risen 60 percent since then. Due to this rise in the market, equity investors should consider booking some profits and consider investing in equities to debt or gold to rebalance their portfolio.
The first phase of creating a long-term portfolio for your investment is asset allocation. Brijesh Damodaran, managing partner of Bailwether Advisors, says that asset allocation is very important for wealth creation and it happens in a different way for each person. According to Damodaran, the investor should have his goals such as buying a house, higher education or retirement of children; Asset location should be done based on age and risk taking ability. Liquidity of at least 36 months should also be ensured.
Investing in the long term and keeping your portfolio balanced from time to time is the most important factor for wealth creation. Under the strategy of Proper Asset Allocation, investment in equity, debt, gold, real estate should be monitored from time to time, thereby protecting the investment from market volatility.
Advantage of averaging from SIP
Usually, many investors get nervous due to correction in the market and start selling their investment. In addition, some investors liquidate their entire equity portfolio and invest their money in fixed income sources such as bonds, small savings and bank deposits. Market experts believe that equity investment in a rising market is not a good decision, but rather when the market is at a lower level, a strategy to invest in equity should be adopted.
Mutual fund investors should invest in their Systematic Investment Plans (SIPs) to benefit from cost averaging. At the moment when investment in SIP has increased, its share in Total AUM (Asset Under Management) in September was 13 per cent, which is a record. Apart from this, SIP accounts have also increased 30% to 3.3 crore in the last four years.
Take decision according to tax liability
Investors should also keep in mind the tax impact on long term capital gains and short term capital gains when booking profits. In case of long term capital gains, tax liability of 10% is made on redemptions of more than 1 lakh in a financial year and 15% in case of short term capital gains (holdings for less than one year). . Analysts believe that looking at the tax rate, one should book profits on stocks with holdings of more than one year. Rebalancing your portfolio helps investors remove low-quality and underperforming stocks from their portfolio.
To rebalance your portfolio, profits earned from equity can be invested in fixed income securities and gold. If a person is close to retirement, he should increase his investment in debt funds. Analysts suggest that in the current circumstances, investors should invest in corporate bond funds and banking and PSU debt funds. Credit risk and interest rate risk should be analyzed before investing in debt funds.
The investment portfolio of the fund house should analyze whether the bonds belong to well-known companies or the fund manager is trying to get returns by taking more credit risk. Apart from this, the liquidity risk of funds should also be kept in mind and also keep in mind how fast the fund managers can come out of a particular investment in the event of a fall in the market.
(Author: Saikat Neogi).