Here are four ways in which you can ensure a perfect portfolio

When we do investments, sometimes they are ad-hoc or sometimes more planned via monthly SIPs. But either ways, reviewing portfolio on a timely basis is crucial. But what parameters should be consider while reviewing? What is the benchmark that we need to set it up against?

In short, how do we build the perfect portfolio?

Here are four ways which will help you review your current portfolio:

1. Diversification

We have heard that dialogue, “Filmein sirf teen cheezo se chalti hain, Entertainment, Entertainment, Entertainment. Similarly a perfect portfolio is made by only one thing – Diversification, Diversification, Diversification. This cuts down your risk, and allows you to benefit from the rally of each type of investment category.

2. Go Direct

Mutual funds are of two types namely – Regular and Direct. In Regular plans of mutual funds a chunk of your investments plus returns are going to a broker whether it is an individual or an institution. Opting for direct plans of mutual funds helps you to save on commissions and gives you higher returns on the same portfolio. If by one switch, and doing nothing else, we are getting more from our investments, why wouldn’t we go for it? There are many online platforms like moneyfront.in etc that make switching your portfolio very easy. Do it now!

3. Don’t ignore taxes

Do you know that not all returns on investments are tax free? Basis different categories of investments different levels of taxations get applied. We are not just talking about doing investments towards saving tax for eg. ELSS that give you deductions under section 80C of the income tax act. We are asking you to evaluate the tax impact that you will have from your main source of income as well as from the returns you generate from your investments. After tax deductions if what you get doesn’t beat inflation, you are moving backward than forward.

4. Align your goals and risk appetite

When you get into a vehicle, you know what your destination is going to be. You might make a few stops in between or even take a detour, but your end destination shall remain the same. Similarly, start with a goal in mind before investing. This will help you stay on track and not invest randomly or in products that won’t benefit you. Also analyse what your risk appetite is, that is, what is your risk taking ability. If your riskometer says that you are averse to taking risks, then invest in relatively low risk investment products that safeguard you and your portfolio. The point to remember here is that working towards a goal brings in discipline and your risk appetite measurement keeps you from taking wrong investment decisions.

(The writer is  co-founder and CEO, Moneyfront. Views expressed are personal)