Create a separate portfolio for different financial goals and track each individually

The selection of funds in this process comes at the very end—after the planning, determination of asset allocation, and creation of segregated portfolios


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My main goals are education of my twin daughters (currently aged 1.5 years) and their marriage. I also plan to buy an apartment worth Rs90 lakh-1 crore.

Wealth creation plan, for next 10 years: in large cap funds Rs3,000 a month in Birla Sun Life Frontline Equity and Franklin India Bluechip Fund; in diversified funds Rs2,000 a month in ICICI Prudential Value Discovery Fund; in small and mid-cap, Rs2,500 a month in Motilal Oswal Most Focused 35 Multicap Fund and UTI Mid Cap Fund Growth option; in balance or hybrid funds Rs2,000 in Birla Sun Life Balanced ‘95 Fund; and in debt, Rs2,000 a month in HDFC Short -Term Plan.

Tax-saving plan for 3 years: in equity-linked savings scheme (ELSS) Rs1,500 a month each in Birla Sun Life Tax Relief 96’ Fund-Growth and Axis Long Term Equity Fund. Please review.

—Harsha Archak

A lot of investors think that picking the right funds is the most important thing about building a good portfolio. It is indeed important, but even more important is to position the portfolio to yield appropriate and expected results. It starts with creating a plan and structuring the investments to suit the plan. The way to get a plan started is to think about your financial future and identify the needs and timelines that are coming up in the horizon. The good thing about you is that you are well on your way to doing that.

You have identified your upcoming financial goals. Now, as you can see, each of these would definitely have a different timeline.

The goal to buy a house is likely to be a 3- to 5-year goal, and the education goals would arrive before the marriages. Also, you might want to add a long-term retirement goal to this list, with its own time frame.

Once you have lined up these goals, you can start planning the portfolios for them with appropriate asset allocation for each. The best thing to do would be to create separate portfolios for each of them, so that you can design them, track them, and manage them separately. This would also let you attach ‘why’ and ‘what for’ questions with every portfolio and would curtail the temptation to make any premature withdrawals.

As you can see, the selection of funds in this process comes at the very end—after the planning, determination of asset allocation, and creation of segregated portfolios. At this point, the selection of funds is just a matter of choosing good funds from the asset classes you have chosen for each of your portfolios. Looking at the list of funds you have in your portfolio currently, you are doing reasonably well in this department. Some planning and restructuring, and you will be well on your way to realising your financial goals.

Is it good to buy a fund just before it goes ex-dividend?

—Suraj Poornawala

Buying a fund just before it hands-out dividend is a wasteful exercise in investing. When you get dividend distributed in such a situation, investors should realise that they are essentially getting a part of their own invested money back. This is because once the dividends get distributed, the net asset value (NAV) of the fund goes down proportionally, causing the value of your investment to go down too. It is as good as investing a lower sum of money after the dividends have been distributed. Investors should look for profits out of their investment, not just a return of part of principal in a short time.

How should one identify mutual funds whose investment objectives match your asset allocation needs?

—Rishi Pathak

It is important to choose appropriate funds for your portfolio according to your asset allocation, but what you need to match is not the investment objectives, but the risk levels. Depending on the profile of your portfolio, you (or your adviser) would have identified an asset allocation in the form of the percentages of equity and debt, and also the categories of schemes within these asset classes.

Overall, this allocation would determine the risk level of the portfolio. Once this is done, it is simply a matter of picking good funds in each of these categories from a curated lists of funds such as Mint50 (http://mintne.ws/2ax8SYA ). If your asset allocation states that you need 70% equity and 30% debt in your portfolio, and further requires that the 70% equity should be split as 30% large-cap funds, 20% diversified funds, and 20% in mid-cap funds, you can simply pick funds from the Mint50 list from each of these categories to finalise your portfolio.

Srikanth Meenakshi is co-founder and COO, FundsIndia.com.

Queries and views at mintmoney@livemint.com.

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