Features of an excellent portfolio

What makes an Health Portfolio ? . There are some good traits of portfolio which makes it better than others . A good and strong portfolio has some strong elements or parameters which it must meet . These are the Pillars for a strong Portfolio or Investments.

Important Elements are :

1. Capital Appreciation
2. Liquidity
3. Risk Management
4. Goal Oriented

Lets take each of these points one by one :

Capital Appreciation


This is one of the biggest reason to invest. Isn’t it very obvious? Yes , it is . But the main point is not just its growth in numbers but its real worth . We are talking about Post-tax and post inflation returns .

The real return of Plain Fixed Deposits in these high inflation days are negligible when you factor out Inflation and tax (Click Here to Read WHY) . The best investment must be robust and good enough to provide appreciation in real worth over long period of time . Real Estate and Equity (Long term) can generate good returns .

Read a good article on Building Wealth , Click Here


Liquidity

Another important aspect of a good portfolio is that its provide enough liquidity , so that in case of need , you can get the money .

What is Liquidity ? Liquidity is how fast and easily asset can be sold and you can get cash . For example Mutual funds and Shares are highly Liquid , If you have them and want to sell, you can get the money soon . Where as Real estate is not a Liquid asset . So if you need urgent cash , you might not find right price and or buyer.

Every portfolio must have some element of Liquidity, as per the requirement of the investor.

Risk Management


Every portfolio or investment must be to some level insured or have element of risk management

What do we mean by this? A good investor is one who sees beyond what an average investor cant see. Average investors concentrate very well on Profits , How good an investment can be , High returns etc. An exceptional investor goes beyond that and takes care of Worst case Scenarios and situations which may cause damage. He is the real investor .

Some of the steps to be taken are :

– Adequate Insurance to be taken .
– Proper monitoring of performance of investment.
– Getting out early in a bad investment and accepting that you made a wrong decisions.
– keep your self updated with news ,laws , things which can affect you investments .

Risk management is not buying some product for managing risk but being aware of things and taking right and logical decisions.

Read how to protect your Shares and Mutual Funds , Click Here

Goal Oriented

“A good investment is one which has a purpose”

Each and every investment should be done because of a strong reason . I see people who take Insurance policies to save tax at the last rush hour of the year !!! . Better loose the tax benefit and don’t take that policy . That kind of investment is nothing more than a waste or burden. On the top of it these people don’t even need insurance !!!

When someone asks you the reason for making a investment , you should know why you did it ?

Some of the bad or idiotic reasons for doing investments are :

– I can save tax by that
– My friend did it and recommended me
– Everyone is doing it .. why shouldn’t I ?

Every time you take a decision ask yourself some questions like :

– Do i really need it at this point of time ?
– Can i afford it ?
– Do i understand it well ? Can i protect myself if people make me fool ?
– What is the purpose or goal of this investment ?

If you get satisfactory answers go for it else take an expert advice.

Sample Portfolio Analysis.

Sample Portfolio 1

Robert is a married person earning 40,000 per month. He is the sole Earner of the family and and has 2 kids . He is not a risk taker and his portfolio looks like

– 50,000 invested in NSC (opened before 3 years)
– An endowment policy with 10 lacs cover and 40,000 premium for 30 yrs , with maturity benefits.
– 1,40,000 in a Tax saving mutual funds (investment 70k for 2 years for tax saving)
– Home (Rs 30,00,000)
– Cash : 20,000
– Car : worth 5,00,000
– Jewelery worth 80,000

Lets rate his portfolio on all the parameters on the scale of 5 stars

Capital Appreciation : ** (A small portion in Equity , and that too for a wrong reason of just tax saving , Saving through Endowment policy is another wrong decision , the returns are too less )

Liquidity : * (None of the assets are Liquid and Cash available is not enough to meet emergency requirement)

Risk Management :
* (No Risk management , What if he dies after 10 days , What if he meets an accident , What if suddenly he requires 1,00,000 , what if he looses his Job)


Goal Oriented :
* (The reasons for investment in most of the things looks like they are for Tax saving , or some one suggested )

Sample Portfolio 2

Ajay is married and has 2 kids and parents who are all dependent on him , He earns 40,000 per month .

– Long term investments in Tax saving Mutual Funds (Rs 4,000 per month)
– Term Insurance of Rs 80,00,000 (80 Lacs)
– Health Insurance of each member up to 3,00,000 – 4,00,000 (Family Floater Policy)
– Yearly Contribution to PPF (Rs 50,000)
– Invested 1,00,000 in Liquid Funds
– Home loan taken by him and his Wife Jointly (Along with Home Loan Insurance)
– 30,000 invested in Gold ETF and some good shares.
– Rs 25,000 Cash

Lets rate his portfolio on all the parameters on the scale of 5 stars

Capital Appreciation : **** (Appropriate investment in Equity with long term view , and some money in Debt)

Liquidity : ***** (Has good amount of money in Liquid funds , Cash and Gold ETF , which have good liquidity and can provide him Money quickly in case of requirement)

Risk Management :
**** (In case of any type of Eventuality, He is properly covered. He is protected well against Death , Health Issues , Home related issue , Emergency issues)

Goal Oriented : ***** (Most of the investments have strong and valid reasons . Like Term Insurance is required for Financial Cover , Mutual funds investment was for Long term Wealth Creation , PPF investment for Wealth Creation with Debt Route and safe investment , Joint Home Loan with wife for Tax benefits , Health Cover for Tax benefits and cover against Health Issues , Gold Investment in ETF because of Diversification and Liquidity , Cash for instant requirement , Liquid funds investment for Liquidity along with some returns)


Note : Both the portfolio’s are created just for the illustration .

Summary

Each and every person portfolio should be strong on all the areas , it should pass all the criteria to some extent . A portfolio should pass all the parameters for different requirements . If you have a portfolio ask yourself all these questions :

– Is it good enough to provide stable and good returns over long term . Is capital appreciation happening in Value or just numbers are growing , but post-tax and post-inflation returns are negligible .

– If i require instant money within 2 hrs , 2 days or 5 days , Is my portfolio smart enough to provide me .

– Is my portfolio good enough to provide protection to me and my family against calamities or any unexpected events . Do i review my Portfolio in regular basis to cut out the losers .

– Is my portfolio a result of my Needs and requirements or Greed , Ignorance and Hearsay and emotional Buying ? If that’s the case , take action !!!

Some I would be happy to read your comments !!!

50 CommentsAdd Comment

  1. Chetan Ambi

    Manish,

    You have clearly described features of an excellent portfolio in the above article and in your both the books with examples. I really don’t have any questions or doubts. Keep going !! All the best..

  2. Kamlesh Pednekar

    Sir,
    Thank you for all your time and patience in answering our queries. I am 42 years old with salary of Rs.40k pm. I have LIC Policy of S.A. of Rs.5 lacs for 25 years. PPF of Rs.20k p.a. MFs of Rs.3k p.m. I am married and have 1 child of 10 years. Floater meical policy for family. Kindly advise if I need to make any further investments and in what areas. Thank you.

  3. Garima

    Hi Manish,

    I’ve joined one of the Big4 companies this April.

    I am 23 yrs old, earn 5lacs p.a. and this is my first job and I am not well versed with the concept of wealth portfolio.
    I want to invest my money for long term investments with the following goals in my mind:
    1. wealth creation
    2. insurance from any eventualities like accident, death, etc.
    3. tax benefit.
    Also, I want to invest for short term as well to fund my marriage which may be in coming 4-5 years.

    Since I am employed in an auditing firm, I cannot invest in shares and equities of listed entities. I may, however, invest in Mutual funds.
    So can you please guide me as to how should my portfolio look like?

    • To start with I think you should start a recurring deposit , and invest in a balanced mutual fund like HDFC Prudence , leanr things for next 6 months and then change the investments if needed

      • Murali

        Hi Manish,
        I am currently saving 40k/month after all my expenses. My savings are like below.
        LIC – 27.5k/year
        PPF – 50k/year
        I really have no clear understanding on Mutual Funds though you have mentioned it so many times. Please advice me which Mutual Funds I have to invest in and whats the approach. Also I need suggestions for SIP.

        Thanks
        Murali

        • Murali

          Can you post your questions in ordered way . Just saying you dont understand it wont work . Ask specific questions . What do you want to know , may be i can point you to relevent resources !

  4. Satya

    Hi Manish ,

    Thanks for your reply ,
    I am planning to put 3500/- per month in mutual funds for long term 20years.
    In mutual funds for every year 36000/- will cost and so remaining 44k from 80k where can i invest ?
    And also let me know good mutual fund companies which will give returns at least 10% in long term.

    Regards
    Satya

  5. Satya

    Hi manish,

    I appreciate your valuable info haring across the world,
    Iam satya 27 yeras old married.
    Iam earning 45K per month ,could you plz suggest a good port folio for my earnings.

    Thanks in advance

    Regards
    Satya

      • Satya

        Hi Manish,

        Thanks for your reply!!!!
        I have two kids, i can continue in IT industry for next 15 years if everything goes fine.
        Iam thinking about the life style after 15 years , for that how much money if i save now onwards to reach the increasing inflation year by year upto 15 years. [ i have seen every year more than 10 % gets increase on every material]

        Now itself admission fees is horrible to join kids in schools .
        I cannot say no to my kids because of money problem ,if my kids get admission in good university in future.
        I can invest 80 k per year even if iam not In IT industry also.
        So please suggest how much i can put in each category like term policies,PPF,Gold MTF,Mutual funds, pension plans etc ..

        I want my life with my family after 15 years also like how we are now. :)

        Thank You !!!

        Regards
        Satya

  6. Sunny

    Hello Manish,
    Your blog on the investment and tax looks simply superb. I have no words to describe.Now having said that i need an expert advice from you:)

    Manish,
    I earn a monthly income of 25000 per month working in a software company and just 26yrs young chap and married too. Initially for tax saving purpose i had declared an amount of 20000 as life insurance. Now before this Jan 5th 2012 i need to submit the proofs of investements made. I havent taken the life insurance stil;l for that 20000. Shoul i go for it? or just loose the tax benefit as you said just to save tax and taking an LIC policy for 20000 Jeevan sathi?
    Loosing tax means it would be 10% of 20000 which is around 2000bucks and they take the money in 3 installments which is around 700bucks.. Will this be ok?

    • Sunny

      The first thing is what you have declared is not a mandatory thing to invest in , So you can invest this 20k in any tax saving thing and not INsurance .. teh declaration is onyl for the purpose of computation of income tax and its not mandatory to follow the same thing you declared . So you can invest this 20k in any way in any tax saving thing .

      I would recommeend taking a term plan nad paying the premium for that .. whatever remains , you can invest in ELSS fund

      Manish

      • Sunny

        Thanks Manish,
        Upto how many years plan is recommended and if so which one i could go for that u suggest? Do i really need to take a term plan considering my sal around 26k? Or will this decision of not going for any plan just to save some tax will be a wise one?

        Manish,
        I always have this feeling before going for a policy. I am still 26 and working for an IT company. I go for a policy upto 25yrs and have to pay the premium till the maturity period lets say 20k per annum. What if one day recession hits and all of a sudden i loose my job, wish nothing of that sort happenes, but still thinking on both sides..if i losse job will i be in a position to pay the premium till maturity period..all these thaughts make me hesitant to go for a one policy,… whts your thoughts on here and what do you recommend me?

        • Sunny

          For you the premiums will be very less like 5-6k for a 50 lacs cover and 8-9k for 1 crore cover .. thats annually .. So dont think abotu the worst cases for so les amount . Also there is no compulsion of paying the premiums till end , if you cant pay somehow , then the policy terminates

          Manish

          • Sunny

            Thanks you manish,
            Can you if dont mind quote some term plan policies which you are aware of anf from which organization would it be good?

            also manish i need to show an investement for 20k to compute my tax so in that case i need tio go for a premium of 20k or would you advice?

            • Sunny

              You have options like Aviva iLife , Kotak e-preffered and LIC Jeevan Amulya .. choose your Sum Assured , not the premium .. if the premium is above 20k , even then go for it .. you are in this world to make your financial life complete , not save tax .

              If premium is less than 20k , then put rest of the money in ELSS fund like HDFC taxsaver

              Manish

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