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. Anonymous

    Hi Manish,

    I have just started investing, in a meanigful way :-)…

    Thanks for all your articles, i could now analyse what is good/bad. The articles are really informative.

    Regards Portfolio rebalancing, i need your suggestion..

    My Portfolio is like this,(Age 26, Single),

    24k/yr – PPF
    5k/Yr – MF’s (ELSS) -Long term
    Term Insurance – 30lacs
    Cash – 40k

    As you could see that my investments are for long term, I am not able to judge where to invest for liquidity, if i need cash in a week or so. and need a Health insurance cover.
    Having cash at hand, is not a good option, as its like having a ‘genie’ and donno what to do… :-)

    Could you please suggest any investment option i should try out?

    Any suggestions/comments are welcome.

    Thanks a lot!

    Rajesh

  2. Manish Chauhan

    @Rajesh

    If you are salaried person .. then your debt requirement must be getting fulfilled by your EPF contribution ..

    Anyways you can put more in PPF , but 15k in PPF looks good ..

    60K in MF looks very good . i hope this 5k is through SIP .. I also hope you have not invested in more than 2-3 mutual funds .. If there are more .. stop them and do investment only in 2-3 max .

    If you also want Liquidity , you can go for Liquid funds or some Debt funds. Put 1 month cash and 2 month expenses in Liquid funds atleast .

    You can go for more Term Insurance considering you have a Family dependent on you .

    Also make sure you have proper health Insurance (Family Floater) .

    Avoid , Endowment policies , Ulips (if you dont understand them) ..

    You can go for ULPP for your retuirement solution .

    – manish

  3. Anonymous

    Thanks manish.
    I appreciate your suggestions.

    Q) Will this entry load be applicable only once or every time we pay through SIP ?

    Our company doesn't have a EPF :-(. As EPF is mandatory if the basic is <6k. Please correct if i'm wrong.
    Can we open an EPF??

    Can I know why did u mention 2-3 MF's max, when diversification is the key to growth.(if you donno the investment game)

    Family floater policy covers the entire family (spouse,children and parents (??))… Can we add the spouse/children at a later stage after taking the policy?

    Thanks in advance.

    Rajesh.

  4. Manish Chauhan

    Rajesh

    Comments inlined , see below ..

    Q) Will this entry load be applicable only once or every time we pay through SIP ?

    It will be applicable everytime you pay .. its acutally 2.25% of total money invested . You can avoid this cost by investing directly through the Fund house .. just a little work for you going there and doing things on your own .

    Our company doesn't have a EPF :-(. As EPF is mandatory if the basic is <6k. Please correct if i'm wrong.
    Can we open an EPF??

    You can not open a EPF your self .. You can open EPF

    see more on

    http://www.epfindia.gov.in/for_employees.htm
    http://www.epfindia.gov.in/for_employees.htm

    Can I know why did u mention 2-3 MF's max, when diversification is the key to growth.(if you donno the investment game)

    See …I will give you a cricket analogy … In Indian Cricket team , There are differnt types of bowlers and batsmans and fielders .. each of them is like an investment product …

    A team performance improves by diversification in all the type of players … Not just one type … ELSS is like fast bowlers … just have 2 of them , not 4-5 , else they will also be like same …

    Its always better to have 2 good fast bowlers and two spinners and not 5 fast bowlers … Diversification should happen in differnt abilities ..

    All ELSS are almost same , some are aggressive and some are not .. Having 5 ELSS will have same effect as having 2 ELSS .. Better to have 2 and then you will have better time to track then and manage them .

    Family floater policy covers the entire family (spouse,children and parents (??))… Can we add the spouse/children at a later stage after taking the policy?

    Familyt floater covers Spouse and children .. by family , they mean Husband, Wife and children . Parents are not covered .

    You have to take a seperate individual policy for them .. you get tax benefit under section 80D upto 15k also on this .
    Did i answer your questions ?

    Manish

  5. Amit

    Hello Sir,
    I had created a debate “Revised balance sheet of Satyam”(description:Can there be any reason of Satyam for not revealing their revised balance sheet before the bidding?”)

    I found ur intrested in Finance market.
    So i request yo give ur valuable suggestion here(in the link given in my name) so that we can know better about this case. looking froward from u.

  6. Manish Chauhan

    Amit

    The site you mentioned is not allowing me to put my comments without making a profile . So I will put my comments here itself .

    Now , I dont consider myself to be too knowledagble or mature enough to talk on this subject , still i will put my personal comments .

    Bidding process is a task where each bidder has to put a bid bases on there own research and valuation . It might not be in the intertest of Satyam to disclose its actual state , because then they might loose the best bidder and the best money they can get .

    Also , It might not be lawfully forcable (i mean there may not be any rule saying that you have to disclose it) .

    Manish

  7. Anand Bhairat

    Hello Manish, your article on looking at Post Tax, post inflation returns is very good.

    You can view our site at http://www.way2goals.com.

    We are providing information about the latest interest rates on Fixed Deposits in India, the maturity value, Interest earned, Interest after taxes and Real gain after adjusting for inflation.

    You suggestion to have

  8. Manish Chauhan

    @Anand

    thanks for the complement . Nice to see your site , Its really a good one and very helpful in field of personal finance .

    It really deserves a mention in my next blog post .

    Some suggestions and concerns:

    Do you also factor in the premature breaking of FD’s and then give list of best FD’s . I knwo this is not common thing , but people who are putting in there money in FD and are not sure if they might need to break it in between or not , may be interested in this .

    Whats your email id or Ph. no . I would like to connect with you .

    Manish

  9. Stock Market Trading

    I agree with what you have shared especially on the risk management part. Investing in not just all about making profits. Investors must also assess their risk tolerance as all investments have risks.

    I am using a very effective concept that allows me to visualize the risks of my entire portfolio. The Risk Management Pyramid.

    The base of course consist of low risk investments like high yield savings account, government bonds, CD's and ETF's, the middle consists of shares, mutual and index funds while the summit consists of high risk investments such as options, futures and collectibles. Of course the allocation of the funds is based on my risk tolerance.

  10. Anonymous

    Hi Manish. I am visiting your blog for the first time. I really appreciate efforts which you are taking for spreading awarness among people in financial and investment planning.
    I read your article on "Features of an excellent portfolio". Its really useful to all. I am sure that, if one builds his portfolio based on the traits explained by you, he will definitely be able to achieve the desired results.
    I thought I should also contribute to your article:
    1. Day by day Exchange Traded Funds (ETFs)are also gaining importance and one may consider them as part of his portfolio. Reason being there are not many MFs schems (considering number of MFs schemes available in India) who are able to beat their Benchmarks. So, by investing in ETFs, the returns are directly linked with the underlying Index's performance as ETFs have very low exp ratio and also low tracking error. Nifty BeEs is the best example.

    2. Secondly, if the desired corpus for a specific purpose is achieved thr investment in stock market/equity MFs well before when it was required, then it is advisable to switch that corpus in safe bets such FDs, Debt Funds, Liquid Funds depending upon when the funds are required.
    For Example – If Rs. 20 lacs are needed down the line 10yrs for down payment for buying a Home and for this one invests systematically in stock/MFs. It may happen that, he could get good return on invt and achieve the targeted sum of Rs. 20 lacs within 9 yrs only. Then, in such a situation, it would be advisable to withdraw Rs. 20 lacs from stocks/MFs and invest in Safe and Liquid instruments such as FDs, Debt Funds so that he will be protected from sudden market crash like one happened in 2008…..

    Regards,
    Shailesh

  11. Manish Chauhan

    @Sailesh

    Thanks for the comment . Your contribution on ETF and Saving for goal is really appreciated .

    So how do you compare Mutual funds with ETF :)

    Manish

  12. shailesh

    Hi Manish. Thanks for appreciating my comments.

    To put it in simple words, ETFs are MFs which can be bought and sold on a stock exchange. ETFs are passively managed.

    The reason why I recommend ETFs is, Instead of choosing any MF scheme out of thousands of schemes which must outperform or atleast follow its benchmark index, it would be worthwhile to invest in an ETF and expect returns at par with Benchmark Index's performance.

    Whats say?

    Regards,
    Shailesh

  13. Manish Chauhan

    @Sailesh

    I will agree on some parts . What do you say about return comparision of Mutual funds and ETF

    Most of the top Mutual funds have returned more than 30% CAGR for last 5 yrs, compared to ETF's 22-23% return . Are ETF's always better than Mutual funds ?

    Manish

  14. A great article Manish, really nice presentation of things…

    I would be really pleased if you would agree to write a weekly/biweekly article on my blog EquiTipz… :) This would also help jagoinvestor spread the word 😀
    .-= Amandeep Singh´s last blog ..The best gift for your children on the New Year 2010!!! =-.

      • Manish, as we talked earlier… I also run a blog that discusses the same topics as your’s. So, the genres of the articles would be the same… Mutual Funds, Various Product reviews, financial planning, personal finance, ULIPs, insurance and income tax…. You may register here and start posting your content which would be posted in your name and spread the word about JagoInvestor … :)

  15. anonymous

    hello manish
    your advice are very appreciative.please have a look at my portfolio my self vikash age 27 just married.

    24k/yr- ppf
    approx-36k/yr in epf.
    24k/yr- sbi life unit plus regular( a ulip plan)
    10880/yr- lic jeevan anand( sum assured 2lac )
    6k/yr-sbi magnum tax gain
    6k/yr-reliance regular saving fund growth plan
    6k/yr-sbi contra growth.

    how is my portfolio please advice the need.

    • Vikas

      Debt component look high . you can stop PPF contribution as your EPF is anyways going well .

      You can stop your LIC policy and reconsider about ULIP . better get into ETF’s and some index funds instead of LIC and ULIP .

      Manish

  16. Aparna

    Manish,

    I haven’t seen mention of IPOs in any of your posts that I’ve read so far. Do you think it is not worth investing in ipos? My thoughts are as follows:
    1. Now the limit on retail investors is 2L. This is a bit too much to leave it idle. Applying upto 1 lakh is OK. But does one get any shares, if not applied for the maximum?
    2. IPOs that come when markets are high have high risk(suppose market suddenly falls at the time of listing, then it’ll take a long time to recover), and those that come when markets are low dont give immediate returns.
    3. Emergency fund can be used for applying, but it gets locked at least for ten days in which case emergency fund doesnt really act as one.
    4.Not all IPOs/FPOs are good, one needs to spend time knowing about the company. Considering the small amount of shares that get allocated, it may not be worthwhile to put efforts.

    Am not sure whether my comment is relevant to this post..But I am trying to link liquid cash and cash required to apply for IPOs. Therefore put the comment here. Would be happy to read your and your wise readers’ thoughts on this.

    Regards
    Aparna

    • Aparna

      I dont think IPO’s should be applied for atleast from the emergency amount, because IPO is not emergency in any way . Emergency cash is only meant for emergency .

      IPO’s can give profits and losses even though general investors generlly concentrate on profitable IPO’s only .

      It takes detailed study to understand IPO’s and pricing . just following the herd can be desastrous like it was for Reliance Power

      Manish

  17. manojkumar

    dear sir,
    Iam 31 yr old doctor, just started earning by march of 2010. my income is 100,000 per month and iam new to the field of investing… i have medical insurance 2lac ( star health) and have a single premium ULIP life link wealth(icici) and an Sbi money back plus 0f 82000 premium per year… please suggest how my portfolio should be …. thanks a lot for this site which contains lot of WISDOM PEARLS…

    • Manoj

      You have got into some wrong products it seems which does not look “simple” to me .. Better try to optimize your portfolio for reaping the benefits . Get a term plan to cover your loved ones and also start systematic investments in mutual funds .. also think about how to invest in your own medical practice or start investing for setting up your practice incase you are not till now ..

      I will mail you

      Manish

  18. munmi

    Hi Manish
    It has been just 2-3 month and I am almost glued to this blog site. It is so easy to understand and therefore effective. Earlier to this I was never satisfied with the logic given by different financial person and therefore was always a safer investor.But, I also realized that to get something we need to take risk a littlebit with understanding.

    However, recently I have incresed my SIP (3-4) of total 10K, planning to take a term insurance (earlier never convinced) and recently opened a PPF , invested in share (Gold) & purchased some physical gold & Silver though very less in Qty.

    Thanks a lot to you & your other team partners.I salute to your patience for explanning the queries from A to Z of simple peple who are not from Finance background.

    Just one question, is it ok if all my SIPs are for 1 year and I renew it for next year. this is basically for liquidity and to study the performance. My main aim is for 15 years minimum.
    Also let me know which term insurance is best ? (femal 30Y ,married,with 1 kid).

  19. 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

  20. 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

  21. 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

  22. 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 !

  23. 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.

  24. 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..

Leave a Comment