Review your portfolio in the New Year

Investing is a process that requires planning and perseverance. It is equally important to ensure that the portfolio remains on track through your defined time horizon. Considering that investment is an on-going process, various aspects of your portfolio must be reviewed in a disciplined manner. If you are not doing this already, the start of a new calendar year can be the right time to start doing so. Although there is no significance of a new year in this process, it helps in maintaining the discipline of reviewing the portfolio at fixed intervals. Here is what you need to do:

Monitor the progress of your portfolio

Monitoring the progress of your portfolio is as important as investing money in the right asset classes and funds within those asset classes. Hence, the performance of funds must be analysed in a manner that projects the correct picture. The key to analyse the performance of market-linked products is to look at the relative performance vis-à-vis the benchmark, as well as the peer group rather than absolute returns. Considering that volatility is a natural phenomenon in the market, it will not be fair to compare the performance of an equity fund with traditional options in the short term. The risk of volatility is something that you need to contend with from time to time. As long as funds in your portfolio do consistently better than average return produced by the peer group, there is no need to panic and take some ad hoc measures.

Rebalance the portfolio

Since asset allocation plays a key role in determining the potential return and the attendant risks, you must ensure that it remains relevant through defined time horizon. Remember, asset allocation changes over time as different asset classes behave differently over different time periods. Therefore, you must rebalance the portfolio, that is, bringing different asset classes back into proper relationship following a significant move in one or more to keep the portfolio on track. Simply put, rebalancing is more about risk than return. Considering that your portfolio is structured to meet a particular risk tolerance, if you don't rebalance you suffer "risk drift".

Include tax-savings investments in investment plan

Many taxpayers invest in an ad hoc manner at the fag end of the financial year. No wonder, they lose an opportunity to make these investments count in their wealth creation process. If you have been following an ad hoc approach and still haven't invested for tax savings for the current financial year, the best you can do is align it to one of your long-term goals. With only three months left in the current financial year, make sure that you plan for tax saving investments for FY 2019-20 in the month of April 2019.

Rethink on dividend option in equity, hybrid funds

There are investors who opted for dividend payout in the past merely because dividend from equity and balanced funds was tax free. Some even used dividend payout option as a tool to book profits periodically. However, consequent to introduction of Dividend Distribution Tax (DDT) of 10%, with effect from April 1, 2018, there is a need to review this strategy. If there is no real requirement of dividend either for running expenses or for any other need, it would be advisable to switch into the growth option. For those who are already in growth option for over a year or more and now require regular income, a Systematic Withdrawal Plan (SWP) can eliminate the uncertainty in receiving regular income, as well as reduce tax implication as compared to DDT.

The writer is CEO, Wiseinvest Advisors