How should investors reshuffle their portfolio? Arnav Pandya answers

"For someone who is already an existing investor, you need to keep asking yourself the question, that what are my goals and is my portfolio in tune with those goals because setting up a portfolio at one stage is part of the job done," says Arnav Pandya, Founder, Moneyeduschool.

Time to look at a five-year plan for your portfolio. If in case you are someone who is yet to enter the world of investments and looking for a portfolio, I mean, there are a few ground rules that you should be taking care of, but then someone who is about to start the investment journey and also someone who has an existing portfolio, let us take a time frame of five years and the kind of changes that one should be doing in their portfolio which is existing and formation of a new portfolio.
Investor who is looking at building a portfolio, the job is obviously much easier because you need to follow some basic rules, which is that you need to keep investing regularly over a period of time, you need to first set your goals. Based on their goals, you can do the asset allocation, which is suitable for you and based on that look at how much you will allocate to each asset class, be it equity, debt, real estate, gold.

And then depending on what your personal position is, like for example, say when it comes to equities, since you are starting off on a portfolio, it is most likely that you do not have experience of the equity markets or in-depth knowledge of the markets as well as the time to manage all this.

So, then the solution is also quite simple for you that you adopt the mutual fund route and let the fund managers who are professionals, experts in this field to manage your money for you. So, in that sense, you have to understand what your position is and then based on that start investing regularly based on your goal and what you want to achieve, that is as far as a new investor is concerned.

For someone who is already an existing investor, you need to keep asking yourself the question, that what are my goals and is my portfolio in tune with those goals because setting up a portfolio at one stage is part of the job done.
But as asset prices move, as things change, it is most likely that what you started off with is not what you have at the moment.

So, if that is the case, then at regular time intervals, you also need to rebalance your portfolio, both across asset classes, within asset classes, and ensure that you have a diversified portfolio which controls the risk that you are taking because sometimes what also happens is that in the joy or rather the process of having a portfolio and seeing it rise, you lose track of the fact that your risk is also not in tune with what it should be or rather it has gone up more.

Nitish Kumar Party is expecting at least five ministries under NDA government and railway and defence being their preferred choices. Do you think till we get the clarity about who is getting what, it is better to stay away from your sectoral exposure or any thematic exposure or investment in your portfolio?
There are two things. One is that there is political posturing which obviously happens because they are going to go into a negotiation. But till the date on which that swearing can happens, the ministers take oath, all this is just in the whole realm of speculation, so one should not make any investment decisions based on this. The second part here and which is the important thing is that if you look closely at what Mr Narendra Modi said in the victory speech, it is very clear that the road to Viksit Bharat, he said, will continue.

There will be focus on infrastructure continuously going ahead, road, railways, ports, airports, power, all those, the basic infrastructure which is needed. There will be emphasis on several specific sectors, green energy, electrical vehicles, things like that, defence.

So, these are the same things which he has been saying or rather which the government in the past term has also been following. So, in that sense you can see that there is clear thinking, there is continuity, who the minister is, how they implement it, that is a secondary matter.

But that should not be the basis of making an investment decision. The question for you as an investor is very clear that if you expect a theme to play out, how are you going to take exposure to it? You have two options. One is that diversified equity funds across a range of areas, be it largecaps, flexicaps, midcaps, have exposure across sectors. So, you can take an exposure through that route or you can go through the thematic or the sectoral fund route.

But there the risk is higher and there specifically that sector has to do well, one, and two, you also have to consider the fact that how much of the valuation is already priced in because if you look at something like infrastructure, everyone knows that infrastructure will still receive attention going ahead. The capital allocation to it has been increasing in the budget after budget. But if you look at infrastructure funds and the kind of performance they have shown, 300-400% rise over the past two-three years, then it is also evident that a lot of the value is already within the price. So, as a new investor, if you are going to allocate money there, should you be doing that? So, these are the important questions that investors need to answer and not just focus on the headline and then make an investment.

Now going ahead strategies for rebalancing or reshuffling your portfolio, what would you suggest.
Strategies one is very clear that you should be diversified across asset classes and I am saying this because sooner or later you will see that there is going to be a situation where interest rates start coming down so at that point of time having an exposure, an adequate exposure of debt according to your requirements is essential so that you also benefit from this change in trend in the interest rate cycle that is one thing.

The other part is that look carefully in terms of whether you are taking too much risk in the portfolio because if that is the case and that can be because of two reasons, one is that either you have allocated more to specific areas or it could also be that you have allocated properly but over a period of time because of the sharp run-up in various mutual funds your exposure to a particular area has gone up specifically smallcap, midcaps, if that has happened or some specific sector that has happened, it is definitely time to ensure that you do some rebalancing because this kind of rebalancing is required if you use the current situation as then just an excuse to do it, then it is better otherwise you should be doing it on a normal regular basis, so do these kind of things, reduce risk in your portfolio and ensure that over a period of time the portfolio and the investment keep growing through regular investments. If that these strategies are followed, then it is more likely that you will end up with a healthy portfolio over a period of time.


Now talking about having international exposure, can that be an area where as per your risk appetite you can look at if not sector specific allocation or diversification in portfolio on the domestic front, should you be looking at diversification on the international front?
Well, once your portfolio size rises it is always logical to go in for different types of diversification and geographical diversifications are good way to go about it. Secondly is that if you have several goals which are going to be in say foreign currency, so for example if you have a future child's education in mind which is going to be abroad, then having a little bit of exposure through international investments is a good way to go about it because it reduces the currency volatility and risk which you have in the portfolio.

The only question now is that you might not get the choice of funds in terms of if you want to invest internationally considering the various restrictions that have come into place in the mutual fund industry first for actively managed funds, then even with respect to ETFs.

So, whether they are open for investment that is one of the questions that an investor should also look at before they are looking for international diversification but that is always a good idea but it also has to be seen in respect of your requirements as well as the size of your portfolio.