Mumbai: It’s that time of year when people plan fresh starts. While gym memberships are part of many people’s resolutions, some take a step back to review their investment portfolios.
In fact, several people make it a habit to review their portfolios at the end of every year. But the question remains: how often should you tweak your portfolio?
There’s no straightforward answer, say registered investment advisors.
Abhishek Kumar, founder of Sahaj Money, said his sweet spot is reviewing his investment portfolio once every six months. “It’s not too frequent nor too laid back.”
Kumar added that if the equity portion of an investor’s portfolio swells up when stocks do well, it is advisable to bring it back to the pre-decided allocation level as per the investor’s risk tolerance.
But do note: tax and other fees should be carefully considered before selling investments, he said. Equities are taxed at 12.5% of the gains if held for 12 months or longer and at 20% if held for under a year. There is an exemption limit of up to ₹1.25 lakh in a year in capital gains of equity and equity-oriented funds. Debt funds are taxed at the slab rate.
Rebalancing investments
Probitus Wealth founder Kavitha Menon suggested that investors consider making fresh investments before exiting investments and incurring a capital gains tax.
For instance, if you feel the markets are overvalued and want to trim your exposure to equities, you can start by cutting down on your systematic investment plan (SIP) payouts towards equity mutual funds and investing more in debt or liquid funds.
Menon said she recommends this strategy to her clients based on the performance of the stock markets. “If someone targets a 50:50 portfolio between debt and equity, then they can make it 60:40 if they feel the markets are overvalued.”
Mapping the exit routes
Harsh Roongta, founder of Fee-Only Investment Advisors, said that while people should keep their goals in mind while investing, they should also plan their exit strategy so emotions don’t come into play at a later stage.
“Just like we plan the entry in any volatile asset class, the withdrawal should also be systematic,” said Roongta. “Let’s say you plan to buy a car 5 years from now and started putting money aside for it in equity mutual funds. After 4 years, you can start systematically withdrawing 1/12 of the money every month and put it towards liquid funds, which are less volatile and safe.”
Menon of Probitus Wealth added that retail investors should also invest in diversified funds such as multi-asset, hybrid, or equity savings funds. Asset allocation in such funds is managed by a fund manager with greater expertise than the average investor, and besides, investors don’t have to pay taxes when a mutual fund shifts its asset class within the scheme, she said.
