2019 personal finance ideasThe year has just begun. This is the time to have a look at your existing mutual funds portfolio and evaluate how they are doing. If needed, one needs to let go of those mutual funds and buy into new ones.  There are a few funds which have changed their mandate too following the SEBI recategorisation. If they don’t fit into your scheme of them, it’s time to do the portfolio rebalancing. Here are five such ideas for you for the new year.

1) Portfolio rebalancing

You may have chosen your asset allocation and mutual fund schemes post a careful evaluation, however,  it is essential to keep monitoring changes in the portfolio. This is because the baseline portfolio strategy could undergo a change. These portfolio changes could be attributed to regulatory changes, changes in fund house views or changing economic scenario. In the past year, many schemes altered their positioning owing SEBI’s scheme recategorisation exercise. Many scheme mergers have resulted in a change in the original strategy of the schemes which you signed up for. Strategy changes in any fund could potentially change a fund’s risk profile thus it is necessary to re-evaluate riskiness of your investments and matching them to your risk appetite.

Here are a few select schemes that changed their positioning in the past year:

Scheme Name Old Positioning Current Name Current Positioning Impact
Changes Owing to Recategorisation
L&T Tax Saver Fund ELSS L&T Equity Fund Multicap Higher Risk Profile
No Tax Benefit
ICICI Top 100 Fund Large Cap ICICI Large & Midcap Fund Large & Mid Higher Risk Profile
ABSL India Reforms Fund Diversified ABSL Infrastructure Fund Sectoral Higher Risk Profile
Strategy Changes
DSP Strategic Bond Fund Moderately Aggressive with Modified Duration of 2.28 as on June’18 DSP Strategic Bond Fund Aggressive positioning with Modified Duration of 5.04 as on Nov’18 Sensitivity to interest rate changes almost doubled in past 6 month. The fund now has a higher risk profile

2) Tax planning

January, February & March – commonly known as JFM is a tax season. If you haven’t already done any tax planning, it’s a high time to do so. Well planned investments in tax saving instruments would reduce your tax liability. You can avail upto a maximum of Rs 1.5 lakh tax exemption under section 80c. There are many investment options available for saving taxes under section 80c – like Public Provident Fund (PPF), National Pension System (NPS), National Savings Certificate, 5-yr bank deposit & Equity Linked Saving Scheme (ELSS). Out of these options, ELSS schemes have lowest lock in period of three years.

Here are 3 year returns of some of the top performing ELSS schemes in the industry,

Fund Name
(Direct Plan)
3 yr Return (%)
Mirae Asset Tax Saver Fund 20.53
Motilal Oswal Long Term Equity Fund 15.65
JM Tax Gain Fund 14.98
Principal Tax Saving Fund 14.46
Quant Tax Plan 14.23

3) Create emergency fund

Importance of an emergency fund has been reiterated several times by all the investment advisors, analysts and investment experts. To meet a sudden unexpected financial requirement emergency kitty is a must have for all the investors. This year, plan for your emergency fund with your salary increment. We suggest two ways of doing the same:

  • If you have conservative mind set and believe you may require this money in the coming year itself, we suggest to park it in to a short-term fund which will provide regular income and less volatility and ready liquidity if required. In case you don’t use this corpus during the year you may start a Systematic Transfer Plan (STP) and transfer this amount to an equity scheme on monthly basis. At the same time parking next year’s increment again in a short-term fund.
  • If you have aggressive mind set, we would suggest you to start investing through Systematic Investment Plan (SIP) in a large cap equity fund and keep investing for at least three years. Post that transfer this corpus to mid-yield – high quality portfolios like corporate bond funds. This will ensure higher growth of your money in the first 3 years and then regular income in the later years. We suggest you to adopt this strategy at the start of your carrier when there are fewer personal responsibilities.

4) Beaten down schemes

Every year we see some good performing schemes and some bad performing schemes. While it’s good to be invested in schemes delivering higher returns it is also sensible to evaluate bad performing schemes for further investments. To do this, one needs to carefully assess the reasons for bad performance. For example, owing to several headwinds like high crude prices, trade tensions, foreign outflows and depreciating rupee most of the equity schemes have delivered negative returns. You need to figure out such beaten down schemes and consider them for further investments as doing so you may be entering at an optimum price level.

However, one needs to be mindful of other reasons for bad performance. If the scheme has issues with its strategy or portfolio management style, then it’s better to stay away from such schemes.

5) New investment opportunities

Always be on a look out for new avenues for parking money. We are witnessing the introduction of several innovative strategies and investment products that would cater to customised requirements.

  • International equity funds: are the funds that endeavour to provide investors with exposure to well performing foreign stocks and thus achieve geographical diversification too. There are occasions when emerging markets do badly while at the same time developed markets do well. We all use products and services offered by companies like Google, Amazon, Apple etc. Being invested in these stocks may lead to significant wealth creation in the long run.
  • Gold bonds: This year we saw government issuing gold bonds for retail investors. These bonds have lock in of eight years, provide tax free capital gains on maturity and interest of 2.5% per annum. These are great investment vehicles for hedging your portfolio or diversifying your asset allocation
Author
Priyanka Bharati

Priyanka Bharati is a senior personal finance analyst with RupeeIQ. She can be reached on priyanka.bharati@rupeeiq.com