The first step to creating a portfolio

By Morningstar |  08-06-18 | 

I am a new investor in my early twenties. How do I get started when it comes to creating an investment portfolio?

- Ramesh Krishnan

The asset allocation, which is nothing but the mix of various assets (equity, debt, gold, real estate) held in a portfolio, is considered one of the key determinants of the portfolio’s performance, in terms of risk and return.

So the first step is having a suitable asset allocation. You arrive at this typically based on your investment horizon and risk appetite. Generally, longer the investment horizon and higher the risk appetite, higher would be the allocation to equity. For example, if the investment horizon is 10 years and above, then 70-80% of your investment portfolio could be allocated to equity and 20-30% to debt.

When you look at your debt portfolio, do consider your contributions to the Employees Provident Fund (EPF), Public Provident Fund (PPF) and bank fixed deposits.

The best mode of investing in equity is via monthly Systematic Investment Plans, or SIPs. For the aforementioned investment horizon, it would be advisable to select one large cap and one small/mid-cap equity fund or flexi-cap funds that invest in large, mid and small cap stocks in varying proportions based on the fund manager’s views.

If you seek tax benefits under Section 80C, then you may start a SIP in an Equity-Linked Savings Scheme, or ELSS. This is a diversified equity fund that offers a tax break and carries a lock-in period of 3-years.

Additionally, you can consider investing in an international equity fund. International equities provide exposure to different economic drivers (vis-à-vis Indian equities), thereby helping diversify one’s portfolio.

When selecting funds, it is advisable to consider their performance over at least the previous three years to five years. This along with studying calendar wise performance vis-à-vis benchmark indices (like Sensex, Nifty, etc.) and peer group would indicate consistency across time frames and market cycles. Additionally, you could consider the fund’s assets under management (AUM should be greater than Rs 500 crore.) and period of existence (longer the better).

Add a Comment
Please login or register to post a comment.
prem aryan
Jun 16 2018 10:48 AM
i m invested in
DSP BLACKROCK Tax saver : 5000
Mirae Asset tax saver : 2500
I m considering to invest 7500 in only one of the above funds, which one should i opt for , my investment horizone for this is 20 yrs ?
Mutual Fund Tools