Clean up your portfolio!

By | December 9, 2014


Prime Minister Narendra Modi recently kick started the ‘Clean India’ Campaign amidst great fanfare and a lot of celebrities along with ordinary citizens took part in the campaign. While it is essential to keep our surroundings clean have we ever given a thought about cleaning up our investment portfolio?

Let’s see the portfolio of a typical Indian Investor:

Invariably he has a few life insurance policies bought for tax savings, sold to him by his friendly neighbourhood agent or ULIPs which have been pushed by his Smart Bank Relationship Manager whose job was to fulfil his target and get fat commissions, a few investments in post office schemes like MIS, RD and NSC/KVP invested randomly whenever there was some spare money available and some FDs in different banks.

There may be bonds of various types like infra bonds or NCDs from NBFCs which gave higher returns compared to banks and deep discount bonds which promise a big amount at maturity after 18-21-25 years.

The investments in equity typically consists of shares of companies bought on tips or based on recommendations heard on business channels, or ideas from the pink papers expecting quick returns and shares allotted during the previous IPO booms held either in Demat or in physical mode. He probably has no idea of the number of companies he has invested in, whether they are performing, paying dividends or whether they continue to be listed or have simply disappeared.

Mutual fund investments may include schemes of mutual funds subscribed during NFOs of different AMCs especially when the markets were close to highs and everyone was talking about having made good returns from mutual funds which would mean that these are thematic funds which may or may not have performed.

Many people also tend to invest in schemes promising higher returns but end up losing all their hard earned money like the recent Saradha scam or investing in teak wood plantations, goat farming or Emu farming or even potato farming!

All this clearly points to only one thing that the investments have been done in a haphazard manner and have not been planned with any goal in mind. Some have been done to save tax at the last minute and some have been done to oblige someone like an uncle or a friend and many of them may have been done in the anticipation of making quick money.

Spring clean your portfolio!

1)      List all your investments in a file/folder in electronic or physical form, in one place where you can get a snapshot of the entire portfolio. Many websites offer these services for free; nowadays many mobile apps also are available for the same. The filing can be done based on the maturity dates, and invariably one will find that there are a few instruments which have already matured and are not earning anything now.The filing can also be done category wise, i e, fixed return instruments like bank FDs, post office schemes together and equities that can be redeemed any time separate.

2)      If any shares are held in physical form they need to be immediately converted to electronic form, otherwise it is impossible to trade in them and even if possible it happens at a steep discount to the market price.

3)      The most important thing with insurance policies is paying the premium on time. Normally the agent takes care of this, but this needs to be tracked regularly.

4)      The thing many people forget in insurance policies and in all other investments is to update the nomination. Normally when the investment was done probably a few years ago, a nominee’s name was registered randomly who may or may not be with you now or your status may have changed from single to married or divorced in which case you must update the nomination.

5)      Make a habit of reviewing your investments periodically either half yearly or once a year to keep a track of all your investments.

6)      Most importantly please get in touch with an advisor/planner who can guide you on his requirements considering your age, risk profile and financial goals and plan investments accordingly for a small fee.

Let us discuss a real life case of cleaning up of a large unplanned portfolio of an Investor.

Mr. Raj a rich businessman aged 65 had done some investments based on tips and recommendations in the last few years. As a result he had 12 MF investments, a few accounts in the post office. His demat statement showed him holding shares of 251 companies, most of them in poor quality and in the odd quantities of 8-12-20-25 and few blue chips which were in good quantities like 300-500.

Mr. Raj and I decided the following:

1)      Sell all the shares whose quantity was less than 50 and wasn’t a blue chip company which brought down the no. of scrips to around 35 and reinvested the money into existing blue chip shares. The reason for selling the shares with low quantity is this: however good the company maybe, if you hold 8-12-20 shares and even if the price doubles in a few years how much return does it gives to the portfolio? Negligible.

2)      Reduced the MF holding from 12 to just 4 by redeeming funds that were not performing or were thematic in nature. This money was reinvested in large cap oriented equity funds. The customer is comfortable with most of his corpus in equity at his age.

3)      The post office investments were nearing maturity, so did not redeem which would have caused a loss if en-cashed prematurely.

4)      The nomination of his Demat account and his Annuity policies was updated.

What is your view on investments and asset management? What do you feel is the most successful investment strategy that will work for you and Why?


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