#AD
New year calls for new beginnings and revisiting your existing plans. This holds true for your mutual fund investments as well. New year can be a great time for an investor to reevaluate and reflect their investment portfolio and make changes as required. In this article, we will look at a 5-point checklist that you can choose to follow to successfully reassess your portfolio. Ask yourself the following questions to understand if you are on the right track:
1. Are you fully prepared for any unforeseen situation that might come your way?
Emergencies do not come knocking in life. Hence, it is a good idea to be always prepared for any contingency that might come your way. You can begin by creating an emergency corpus which must comprise a minimum of three to six months of your living expenses. These funds must be further invested in any liquid instrument such as liquid funds.
2. Is your existing asset allocation strategy in line with your financial objectives?
given the recent rally in the equity markets, odds are that your current equity allocation in the markets is much higher than anticipated. If this is the case, then this is an opportune time to book your profits and change your asset allocation strategy so that you are back to your original asset allocation strategy.
3. Are you adequately diversified across different types of investments?
You must have constantly come across the term – do not put all your eggs in a single basket. Well, this holds true for mutual fund investments as well. You must never allocate all your funds to a single asset class or a single type of investment. It is a good idea to diversify your investment portfolio so that you can offset any losses arising from one type of investment.
4. Are your risk return and volatility expectations met?
For debt funds – If you are heavily invested in fixed income securities, it might be a good idea to lower your return expectations. This is because the interest rates have been quite low in the last few years. For debt funds, it makes sense that the return expectation of an individual is centered around the current YTM (yield to maturity) adjusted for expense ratio.
For equities – Given the high valuations of the equity markets in the current scenario, the next few years are likely to be predominantly driven by earnings growth ratio of a fund. If the equity markets further fall, then it may be a good idea to increase your equity allocation.
5. Have you increased or upped your SIP investment amount?
It is a good investment habit to increase your SIP investments as your salary grow. This makes sense. As your salary or income levels grow as you grow in your career, so should your investments. Top-up SIP or step-up SIP helps you do the same in a systematic manner. Using top-up SIP, you can systematically upsurge your SIP investment amount either by a fixed number or by a fixed percentage every year.
Hope that the above 5 checklist will help you create a better financial future for you and your family. Happy investing!
