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The market continues to stay above the 70,000 mark and has made investors rethink about their financial journey. Many investors tend to feel the current market movements demand some sort of changes in the investment portfolio. This gives rise to some common questions in their mind.
Here are some of these and how you can address them.
Should I book profits now and then invest again later?
Chokkalingam Palaniappan of Prakala Wealth, Chennai reminds clients about financial aspirations linked to investments.
He says, “If and only if the financial goal is maturing within a year from now, it seems okay to redeem 25-50% of funds. Otherwise, irrespective of the higher unrealized returns, it makes sense to stay invested and accumulate the desired corpus as market ups and downs are bound to happen.”
I have ideal cash sitting. How can I make lump sum investments?
Addressing this question, Chokkalingam says, “In the case of fresh investments, existing investors having bulk cash are understandably cautious. Here, they may look at large cap, large and mid cap, multi cap or flexi cap investments for a ten-year horizon. Besides, balanced advantage, hybrid or aggressive hybrid funds may be suitable for some existing investors.
For the new breed entering into the industry after looking at their friends’/relatives’ portfolios’ performance, we essentially encourage them to start with SIPs. And if at all, they are keen to bring further money in lump sum, in addition to the first set of equity fund categories stated above, they may consider blue chip funds.”
Does the current market call for a portfolio review and asset reallocation?
Nikhil Gopalakrishnan of Pentad Securities, Kerala typically talks to his clients about regular review of their investment portfolio.
He shares, “Usually investors have a horizon of at least five years when they put money in equity. However, whenever they need money in three years or less, we review the portfolio and change the asset allocation. This is purely requirement-based.
Thus, we believe investors should not rush into changing asset allocation. Anyway, we do regular reviews and asset reallocations as needed. This keeps a check on the portfolio health and the impact of market volatility is automatically taken care of in the long run.”
Is it a good time to redeem mutual funds and repay loan obligations?
Vipul Shah of Bigbucks Finserve, Pune believes that the loan repayment tenure is important here.
He states, “If there are two or three years left in the loan tenure, investors may look at booking profits to square off their loans. However, they should restrict such withdrawals to 20-25% of the portfolio value. Also, they should be committed to invest in SIPs the amount that they would have otherwise continued to pay towards EMIs.
However, in cases where the remaining loan tenure is for a longer duration, investors should refrain from booking even part profits. Basically, 12-14% compounding returns over 10 years or longer is more appealing than paying off loans carrying comparatively lower interest rates.”
Can I look at moving funds from mutual fund investments to real estate?
While addressing this question, VR Aiyappan of Mera Funds, Mysore touches upon loans against mutual funds.
Explaining the math, he shares, “Where the portfolio is sizeable and investors requirement or loan obligation forms up to 40% of portfolio value, he may look at partial redemption. Alternatively, he may consider availing loan against mutual funds.
Let’s assume the portfolio value is Rs 1 crore and the investor needs Rs 25 lakh. At a 2x security cover, he can pledge units worth Rs 50 lakh at an average interest rate of 10%. Since he has stayed invested in mutual funds, he will continue to make returns, probably higher than the loan interest. Interestingly, he can start a systematic withdrawal plan from the remaining portfolio of Rs 50 lakh to service these EMIs.”
