Topic 2: Things to keep in mind while reviewing the investments
Review and Rebalancing of the portfolio is a matter of great discipline. This is the most important part of financial planning process. One needs to follow certain principles before undertaking this step -
Take advice from an Advisor - It is very difficult for a layman to continuously observe the new changes/events happening around in the market. Thus, one should take service of an experienced advisor and should interact with him, at least every quarter. Advisors take responsibility to follow the development and continuously suggests in case of any change is required.
Tax implications due to change - Sometimes, investors churn their portfolio a lot for the sake of rebalancing. This could cause a heavy tax burden of 30% on profit in case if the holding period is less than one year for Equity or Equity Mutual Funds. One can have tax free income if they stay invested for more than a year.One should check the tax implications of a change in the portfolio before taking any action.
Brokerages - One has to incur brokerage and commissions to do any financial transaction. Transaction cost can be as low as 0.5% in case of shares and up to 3% in case of ULIPs. We should keep a close check if the transaction cost is hindering the benefit of a change of the portfolio. In case transaction cost and tax implication together are more than the benefit of the change ina portfolio, it is better to avoid.
Check Risk profile - Sometimes an investment which looks as an opportunity can bring a lot of extra risk to the portfolio. One should always build the portfolio as per their risk profile.
Take advice from an Advisor - It is very difficult for a layman to continuously observe the new changes/events happening around in the market. Thus, one should take service of an experienced advisor and should interact with him, at least every quarter. Advisors take responsibility to follow the development and continuously suggests in case of any change is required.
Tax implications due to change - Sometimes, investors churn their portfolio a lot for the sake of rebalancing. This could cause a heavy tax burden of 30% on profit in case if the holding period is less than one year for Equity or Equity Mutual Funds. One can have tax free income if they stay invested for more than a year.One should check the tax implications of a change in the portfolio before taking any action.
Brokerages - One has to incur brokerage and commissions to do any financial transaction. Transaction cost can be as low as 0.5% in case of shares and up to 3% in case of ULIPs. We should keep a close check if the transaction cost is hindering the benefit of a change of the portfolio. In case transaction cost and tax implication together are more than the benefit of the change ina portfolio, it is better to avoid.
Check Risk profile - Sometimes an investment which looks as an opportunity can bring a lot of extra risk to the portfolio. One should always build the portfolio as per their risk profile.