A well-maintained investment portfolio is vital to anyone’s success. The concept is to not put all your eggs in one basket. This helps mitigate risk and increase your overall return on investments.
That said, here are seven must-haves in your investment portfolio:
Liquid Funds : Let’s start with the most commonly ignored option – Liquid Funds and Ultra-short Debt Funds. Savvy investors are good at investing in Equity, Debt and other investment options. But they often miss taking advantage of their liquid cash lying idle in bank accounts. By taking advantage of a Liquid Fund, you can easily earn more return than a bank account and also ensure it is available for emergencies. Bank accounts, in contrast, often make cash too accessible for unwanted expenditures.
Index Funds : If you had invested in the Sensex 10 years ago, your investments would have jumped 160%. However, this is easier said than done. For starters, Sensex is an index – not an asset that you can buy. To mimic the Sensex, you will have to buy the 30 stocks that form the index in the exact weight and rebalance this portfolio every now and then. While doing this, you may incur high transaction and brokerage charges. Instead, you can simply opt for an Index Fund. This is a Mutual Fund that replicates the Sensex and other benchmark indices. This way, you can save on time, effort as well as lower your costs. This is because Index funds have a lower management fee, assuring a low expense ratio.
ETFs : Exchange-Traded Funds (ETFs) are Mutual Funds that you can trade on the exchange like a stock. Most common ETFs in India are the Index ETFs and Gold ETFs. Index ETFs are an alternative to Index Funds. The biggest benefit is the ease by which you can buy and sell these on the exchange. Thus, with a single ETF, you gain access to a hundred stocks, allowing you to invest in broad categories. This is another way to take advantage of the rise in benchmark indices like Sensex and Nifty without having to form a portfolio that mimics the indices.
Bonds : Unless you are to see a worldwide re-pricing of interest rates overnight, bonds are never likely to crash like equity. This level of certainty is rare in other asset classes. That’s why bonds are often considered almost risk-free. Of course, this only applies to certain types of bonds. You can look at the bond’s rating to measure their risk. All said and done, you can hedge your portfolio against market volatility by investing in bonds. You can also consider adding Debt Funds to your portfolio, instead of directly purchasing Bonds, to give your portfolio a downside protection.
Stocks : There are many experienced investors in India. However, a common problem with such investors is their general aversion to stock market investing, which is often considered a gamble. That said, stocks are a must-have in almost every portfolio, even if it is in a small proportion. This is how investors can beat inflation over the long term. Equity has outperformed other investment asset classes over a long time in India and the globe.
Insurance : You invest to earn money from your money. This is to help you meet different goals in life, like funding your post-retirement life or your child’s education. One of the goals in life is to protect your family after you are gone. To meet this goal, it is important to invest in an insurance policy. While it is not considered a traditional investment and more of protection, insurance is a must-have in your portfolio. Not just life insurance, but also ensure you get a good medical insurance policy in your portfolio. This offers dual benefits – protection as well as tax savings. The returns from your policy do not suffer on any interest, dividend or capital gain until you withdraw your proceeds.
Gold : One of the oldest assets in human history, gold is an asset class that comes handy during economic uncertainties. At times when the markets and currencies are volatile, gold assures safety. However, it could be a good idea to focus more on Gold Funds and ETFs rather than physical gold.