A couple in their early 40s asked me this common and yet important question. They stated that I would always provide them with boring advice and would ask them not to fiddle too much with their already balanced portfolio.

So, the question is have you always wondered when you should add a new company to your existing portfolio or when should I sell an existing stock from the current holding? The more important question is how should one judge the overall portfolio performance. Some parameters that you may generally consider are is the share price the best way to judge your portfolio? 

Most people do not appreciate adding more units of shares you have already bought in your kitty. Why so? 

The answer is quite obvious: It does not excite us. We think that buying something new or an exotic stock will prove to be more fruitful for us. But wait, have you ever thought that you are more likely to be well aware of the companies you already own, it is often a great use of funds to add to them. A good time to add is when there has been an improvement in profits or prospects of the company but the market has not recognized it yet.

Adding a new company 

Remember, there will always be a buying opportunity that can come up when the overall market is on a downward spiral (the bearish phase); when some sectors see a drop /or when some companies become attractive either in valuation terms or prospects or both. What should you do?

You should judge the new company against what you have already bought earlier, as that is the benchmark to beat. Compare the future growth prospects of this new company with that of your overall portfolio. If the new company is not better than what you already own, then it is not going to improve the performance of your overall portfolio. So, you should not consider buying it.

But, just in case this new company will improve your portfolio, then don’t try to time the market. Remember that a great business at a fair price is superior to a fair business at a great price.

Selling an existing company

Now, let’s come to selling an existing company. If a company is becoming weaker and is weakening your overall portfolio, then you should get rid of it. However, it would be best if you did not sell at the very first sign of trouble. Every company goes through its tough times and economic cycle. On the other hand, if you spot a better investment opportunity, you can consider selling the existing one.

Nevertheless, the only way you will be able to make the right call is by keeping track of the company after you have bought it. These are subjective decisions and you may not have all the information.

Don’t fall for this as I have usually come across so many investors who say let’s wait for the price to recover at least my purchase price. Remember, it will only delay the inevitable. Don’t do that.

How to judge your portfolio’s performance?

Only considering the share price movement is not the right approach. It has its weaknesses. In the short term, several factors lead to the fluctuation in the share price. So, simply following the share price can prove to be a quite costly affair for you. You might end up making a poor bad decision.

Now, you will ask what should be your approach. Use the operating performance or check the fundamentals of the company in the portfolio. This would give you a better perspective of reality than short-term price movements. However, price is important in the long term. Good performance almost always gets reflected in the share price movement in the long-term perspective.

Also, see your portfolio’s overall performance rather than that of individual outperformers and underperformers. Any portfolio will have those but what matters more is the aggregate return and not only the outliers.

Equity market is overheated and sooner or later we are supposed to see the meltdown. Everyone is quite enthusiastic by the returns they have been able to generate in the last 2+ years. Those who gave up during the Covid-19 Crash booked heavy losses and now they want to invest and avoid missing out on an opportunity.

So what has changed now? Is it time to book your profits? I have been saying this time and again, your asset allocation is the key to meet your desired goals in a systematic manner. If you look carefully at the Mid Cap and Small Cap mutual fund segment and the overall returns generated by them in the past 2 plus year or so its been an incredible journey. 

Now, the key take away – “always ensure that you should not allocate more than 25 to 30% of your overall portfolio into mid and small cap funds”. However, if you look carefully the returns generated by these segment of funds would have spiked and your overall portfolio balance would have changed from 30% to 45% approximately. This shift in your overall portfolio calls for trimming your positions in this space and restoring them to no more than 25-30 per cent of your equity fund portfolio. After all no-one knows till how long will the market continue to boom but periodically restoring your asset allocation helps keep the risks in check without actively taking a call on the markets. 

Mid and small-cap funds can supplement a long-term growth portfolio well by acting as a booster. They are a valuable addition in a measured quantity of no more than 25-30%. But because these funds rise and fall more dramatically, your allocations to them can sometimes go out of the window, requiring you to restore them. Think again if you are a game for such funds and avoid them if you fall into one of the categories mentioned below :- 

• Your investment horizon is less than 10 years
• If a fall (10 to 25%) in their returns shocks you
• You started investing now because someone one made money from them

As you deal with the trauma of losing a loved one, applying for a life insurance claim may become even more daunting a task if you don’t know how to go about it? Usually, in the Indian family people refrain from sharing the life insurance details with their immediate family members which gets even a more complicated issue for the dependents. One of the most important aspects one should consider  is the difference between the nominee and heir when it comes to insurance claims.

Remember, when it comes to a life insurance policy, there is a concept which is known as the beneficiary / the nominee. This provision was introduced in the Insurance Laws (Amendment) Act, 2015. If an immediate family member (parents, or spouse, or children) is made the nominee, then the proceeds will go to the intended person. Legal heirs will not have any claim on the money. Just in case the nominee is no more then the proceeds will go to the legal heirs.Remember, in the absence of a nominee, the legal heir can claim the insurance proceeds. “Apart from the claim intimation letter and other requisite documentation like death certificate, ID proof of the beneficiary, policy papers, discharge form (if any), post mortem report and hospital records (in case of unnatural death), the legal heir needs to submit the succession certificate issued by a competent court which establishes the right of the legal heir over the assets of the deceased policyholder, including the insurance proceeds. Just in case there are multiple legal heirs and only one is claiming the proceeds, then all other legal heirs need to agree and express their consent to the insurer for that. “The affidavit-cum-indemnity signed by all the legal heirs protects the insurer from similar and separate claims under the policy.

The legal heir can make a claim when there is no nomination in a life insurance policy any time before the maturity of the policy, or if the insured has not requested a fresh nomination in case of the death of the nominee or in case of death of the nominee after the claim is filed but before its settlement.

In case the deceased has more than one child and has not nominated all of them, a claim can be lodged only by the nominated child and the insurer shall pay the proceeds to the nominee only. Other children can stake claim to their shares by moving a competent court of law. So the next time you think about buying an insurance policy, better nominate someone and also try to make them understand what all is required under a life insurance claim. You never know life is so unpredictable these days.

Recently, I met a couple in their mid-30s. They posed an interesting question to me.

What should they do to increase their medical cover without paying much of a premium over and above their already running medical floater plan?

A reason for them being so worried was quite obvious, their parents recently had to undergo a huge medical bill due to their prolonged illness and they were managing it somehow for themselves through their savings! Now, what about these couples as they were employed in Private sector jobs with a very low group medical insurance coverage of ₹ 2 Lakhs!

The second problem was they were not earning a handsome salary package – despite all odds they had still managed to take a separate ₹ 3 lacs floater plan for their family.

Now that’s where a where a Top Up or a Super Top Cover comes into picture. Today I shall discuss the same in detail.

Health top-up plan, it might be a new term for most of you but then knowing it well will really help you in multiple ways. Basically, a health top-up plan is a type of additional coverage for those people who already have a health insurance policy. It enhances sum insured amount at a very reasonable premium. It improves your existing health insurance policy by providing additional health coverage.

A Top-up cover gets triggered once the deductible in the existing policy is worn-out. It is not compulsory to have a health insurance plan to buy top-up plan, but it is advisable to take a health insurance plan before choosing any top-up plan.

Let us simplify this more through an example to understand this in a better way. Suppose you have a health cover of ₹ 3 lakh and you now realized that it’s not enough to meet the needs of a medical emergency. Buying an extra cover of let’s say another ₹ 5 Lakhs means you have to shell out a big amount as a premium. This is where a health top-up plan makes sense. With a health top up policy, you can get additional cover at a low premium and it can save you a lot of money.

Consider the example of Mr. A who has a health insurance policy of ₹ 3 lakh. He is paying an annual premium of   ₹ 8,000.

Unfortunately for Mr. A, he is hospitalized due to a heart attack, the treatment for which goes up to ₹ 7 lakh. Now under normal circumstances, his policy would pay only up to ₹ 3 lakh and he would have to pay the additional amount from his own savings or investments. Now, if Mr. A had opted for a Top-up policy of ₹ 20 lakhs with a deductible limit of ₹ 2 lakh, this additional amount of ₹ 5 lakhs would be paid by his new policy, ensuring that he stays financially protected.

In simple words, a Top-up health insurance policy provides protection after the basic threshold limit under a normal policy is breached or I should say it gets exhausted.

A Top-up insurance policy has certain drawbacks when it comes to its implementation, which can be resolved by opting for a Super Top-Up policy.Unlike a Top-up plan which pays only if the threshold limit on a regular policy is exceeded on a single hospitalization, a Super Top-up provides cover over the threshold limit in multiple cases.Let us take the example of Mr. A again. Post treatment for his disease he suffers another health issue after 6 months, with the bill coming up to ₹ 8 lakhs, which comes outside the ambit of his top-up plan since only one claim can be entertained under its provisions. Now, if Mr. A had opted for a Super Top-up plan with a cover of ₹ 20 lakhs and a threshold of ₹ 2 lakhs, this plan would pay the additional sum of ₹ 6 lakh.

In simple terms, a Super Top-up Health Insurance policy has provisions for multiple claims, which are not offered by a regular top-up plan.

So next time when you think of increasing your health cover why not think about such plans. I hope I was able to clarify on the same.

This is quite an arduous task for most of the investors for whom I am writing this blog. Reason, is quite simple we have been reading this, listening to it but most often we do not follow this.

Most people end up buying more funds in order to enhance their returns but one reason that stands out is many investors feel that the more the funds they have, the better the extent of diversification.

 Please understand that the major purpose of diversification is to reduce your risk and not to boost your returns!! Sadly, we still chase returns and end up complicating our overall investments. Reason: We are greedy, we chase returns and, in the end, we find it really difficult to manage our overall portfolio.

Don’t forget that each of the mutual fund that you buy is a cluster of several stocks, so you are actually investing in all of them. Recently, I evaluated one portfolio where the person had bought 48 mutual funds and the number of underlying stocks in those funds were 917!! So, think hard and don’t make this mistake.

Try to exit such funds which are the underperformers – First, find out the funds in your overall portfolio that have been underperforming for quite some time now and then exit them.

However, a mere blip or a short-term underperformance should not be the reason to sell your fund. Check if the fund manager who had been managing the fund for a long while has moved out which as resulted in the fund behaviour. Take in to consideration the long-term performance vis-à-vis the given category of the fund which you are assessing. Also check the fund’s performance across the different market cycles.

Try to sell thematic or a sectoral fund in your portfolio – Such funds are really risky in nature and may behave quite erratically. Like the recent corona virus pandemic has benefitted the health care sector a lot. As the consumption and overall euphoria towards immunity building products increased, this led to higher sales and the companies benefitted a lot. Resulting in the sky rocket share price and the sector’s performance. Remember as this enthusiasm fizzles out, so will the returns.

Cut down on duplicate funds – If you have similar nature funds, you may want to keep just one of each type. For instance, if you have several large cap funds in your portfolio, you may want to stick to just one by doing so you do not duplicate the funds and will get out of the mess of managing a many.

Remember to follow the core portfolio approach: For instance, you can have two-three diversified fund or a set of balances funds for those not willing to take too much risks as your core portfolio holdings. To it you can add any other funds, such as a mid/small-cap or even an international one, as a supplementary fund. Remember, your core portfolio will command most of the money invested, while the satellite holdings like an international fund or a small cap or a sectoral/thematic fund will help give your overall returns a boost.

Remember, your returns are driven by the quality of your fund selection, not the quantity. So, having a four-five funds are quite enough for you till you decide to complicate your overall investment portfolio. Till then happy investing

Some weeks back, I received a call from my school friend asking me to suggest an Insurance plan which he can buy for his just born child. He was even talking about some children’s plan which a relationship manager had just pitched to him! Probably with rising cost of education, career and future uncertainties in the life of kids and ever increasing troubling period for parents due to job uncertainties force them to get lured into buying these “useless products”. Coming to the point, I had to make an effort to help him understand that there is no such children plan in the market but it is just a marketing gimmick. Ko

A simpler and straight to the point method would be to have a life cover of 10 to 15 times of one’s annual earnings. Let me tell you this is just a thumb rule and cannot be applied to everyone. Life insurance is one such financial product which takes care of your near and dear ones when you’re not around them. This product should never be treated as a money making or an income generating instrument which is usually happening through ULIP and other so called guaranteed plans.

Let’s say you have multiple life insurance policies, but then you should question yourself are you adequately insured? You should know this since in India the majority of the people are still uninsured or underinsured. Just remember a small life cover will not serve the purpose of those who are dependent on you. So, as per the thumb rule explained above, a sum insured should be equal to an amount which should fetch a regular income for the dependants of the insured so that they are able to maintain their lifestyle even if you are not around.

There is also a need based approach through which one can arrive at the appropriate sum insured that one can opt for but then it takes a more customized approach based on one’s assets and liabilities in life.

So in a nutshell, opt for a plain vanilla term plan without any riders added to it so that you get the cheapest available form of insurance in the market. Do not buy a complicated and low yielding ULIP and money back plan available in the market. After all, life insurance is not about making money but about buying peace of mind and taking care of your loved ones when you are not around.

This is tale of Rina, and Her Financial Dilemma a hardworking professional, had been diligently saving and investing in mutual funds for years. She knew the importance of growing her wealth and had heard all about SIPs (Systematic Investment Plans). However, one day, she found herself in a tight spot—she urgently needed cash to cover an unexpected expense.

In a rush, Rina decided to withdraw her funds from the mutual fund. But to her dismay, she had to sell her investments at a 20% loss! It was a hard pill to swallow, especially when she realized that the loss could have been avoided with a bit of foresight.

Enter the SWP: A Missed Opportunity

Rina’s situation might have turned out differently if someone had told her about the Systematic Withdrawal Plan (SWP). While SIPs are all about growing your money over time, SWPs work in the opposite way—they allow you to withdraw a fixed amount from your mutual fund at regular intervals. Whether you need money monthly, quarterly, or even yearly, SWP can be tailored to your needs.

How SWP Could Have Helped Rina?

Had Rina set up an SWP, she could have planned her withdrawals more strategically. Instead of selling a large chunk of her investment at a loss, she could have withdrawn smaller, regular amounts. This disciplined approach could have saved her from the panic and ensured she had money when she needed it, without taking a big hit.

The Benefits of SWP:

• Disciplined Investing: With SWP, Rina would have automatically redeemed some units each month to cover her expenses. This would have protected her from making impulsive, large withdrawals during market downturns, minimizing her losses.
• Cost Averaging: SWP would have helped Rina benefit from rupee cost averaging, meaning she would have gotten a more balanced return over time, rather than relying on the market’s performance at a single point.
• Fixed Income: With SWP, Rina could have ensured a steady stream of income, which would have been especially helpful in managing her monthly expenses or even planning for her retirement.
• Tax Efficiency: Each withdrawal in SWP is treated as a mix of capital and income. Rina would have paid tax only on the income portion, not the entire withdrawal, making it a more tax-efficient option compared to other investments like fixed deposits.

An Example to Ponder

Consider Mr. A, who invested ₹15 lakhs in a mutual fund. Over time, it grew to ₹16.5 lakhs (a 10% increase). If Mr. A withdrew ₹1.5 lakhs at the end of each year using SWP, only a small portion would be considered taxable income. The rest would be treated as a return of capital, resulting in significant tax savings compared to a fixed deposit.

The Moral of the Story

Rina’s experience teaches us the importance of planning and knowing the tools available to us. Had she known about SWP, she could have avoided her 20% loss and managed her finances more effectively. The next time you set financial goals, especially as you near retirement or other important milestones, consider using an SWP to withdraw your funds wisely.

Remember, it’s not just about how you invest, but also how you withdraw your money. And with the right plan, you can avoid unnecessary losses and enjoy the fruits of your investments.

One of my friends recently asked me if investing into a small cap fund pays rich dividends? He had done his part of some quick online research and browsed through the historical returns of quite a few top performing funds in this category. He was quite naturally drawn by looking at handsome returns paid by few of the fund houses

Let me keep it simple for all of you and get straight to the point. I would say don’t get tempted by small-cap funds as they are not meant for everybody. Confused are you? Don’t be.

These funds are suited for somebody who is willing to take risk (when I talk about risk please understand that these funds will give you a very bumpy ride); The principles you need to follow are – keep investing into these funds regularly and do not turn finicky when you see the investment value declining steadily for a prolonged period of time. These small cap funds usually start rewarding you usually after five-seven years because that is when investing in these funds becomes extremely rewarding. So, if you don’t have that stomach and if you don’t have that heart, don’t even think about it. Most investors can do without investing in a small-cap fund. Now, the choice is yours.

My investment portfolio is doomed!! All my investments are at an all-time low!! Shall I exit the market!! Shall I book the loss and move out of the market invest more!! Questions keep coming to me day in day out ever since we came across this market mayhem that had started in Mar 2020. This pandemic is threatening to impact the global economy on a larger scale. So yes, what should we actually do? People have been asking me the same question umpteen number of times. I would say of course, things will get worse, before the dust will settle down and things starts to stabilise and get better. However, the basics of the life, the world dynamics will not change.

Let us look deeper into the history – The Spanish flu pandemic of 1918, the deadliest in history, infected an estimated 5 crore people died worldwide—about one-third of the planet’s population—and it claimed the lives of 1.8 crores Indians. That disease was far more worser than the current COVID19!

Then we had the great depression of 1929. However, one fact that remains constant was no matter how disastrous the impact on market was, it was short-lived. Remember, life moves on. People live their daily lives – they work; they eat; they move. If we look at the last 25 years have been a great education for all of us who invest in the stock market. It is not that this is something new. I still recall the days of 2008 when the market crashed after the Lehmann Brothers fall back and global recession gripped the market across the globe.

What can we expect now? The obvious answer is that we do not know what to expect. The impact could be deep but short, or it could be opposite. Some industries will be impacted to a great extent like the aviation and travel industry – some might have one kind of an impact, some another. Some will recover quickly. Some might cut off or stay away from the South East Asian markets, some will try to find ways to improvise and become self-reliant. So, whatever I am saying now all hints at uncertainty, the markets will dwindle and may drop by 30 to 50% or may be greater. No one knows at this point of time and remember this is not uncommon this had happened in year 1987, 1992, 2001, 2008 and so on.
One useful thing to do would be to look at past declines in stock markets and see what happened subsequently. The question we should be asking ourselves is how long it took for the market to bounce back? Or I should say how much time it took for the market to bounce back and recover from a deep shock? On an average 18 to 24 months!! Are you surprised? You should be but if you look at the market history that’s how quickly market has recovered. For more details refer to the several websites which will provide you the necessary stats and you can see for yourselves. What would you construe out of this am I saying to you that equities would have recovered one or two years from now? I would say the chances of a bounce back are strong.

Of course, in times of a great crisis everything looks dark. Human psychology, the media, the newspapers, business news everywhere the pessimism starts dragging you to the core of nothingness. As in every crisis, managing one’s psychology is important. Yes, there will be slowdowns and recessions but a bounce back is inevitable. This brings us to the real question: what should you actually do? The answer is the same that it ever was: Stay put, if you are equity investor buy quality stuffs, but please stay invested do plan your emergency kits (funds) as I always keep stressing upon and a medical insurance cover. In fact, this is the greatest time to buy quality stocks. Let’s stay optimistic.

In such challenging times like this one would often question me why am I Still talking about personal finance? Well that’s the sole reason I am here for, Right?

So let’s begin there can never be a straightforward answer to this question of rebalancing. I have time and again tried to familiarize people with this idea but it seems it’s too difficult a concept to understand for them. So to make it easier for them – to rebalancee ones portfolio you would require: – to frame a rule on your own as to what your asset allocation will be and secondly at what periodicity (time period) it should be re-balanced?

As a thumb rule rebalancing should be done after 1 year, the reason is obvious it will be more tax-efficientfor you. Take a look at your asset allocation every 1 year and if it changes by more than 5%, rebalance it; otherwise not. But resist your temptation to re-balance every now and then because you might incur transaction costs and taxesas applicable.

If you are investing through the SIP mode in the mutual funds, re-balancing should be done based on the value of your portfolio. Just in case you find it difficult to calculate your portfolio create one online (many websites allow you to create your own portfolio). Let’s assume your current asset allocation is 75% in equity and 25% in debt. Now, let us assume after a year, you find that your equity part has gone up by 20% and debt is up by 10%, and consequently your overall portfolio now consists of say 85% equity. Then, you should either stop your SIP for a few months or (you can enroll for 1 year period SIPs on a regular basis) and make larger investment in debt instruments. This way you will be able to rebalance without selling or redeeming any investment, and avoid any tax implications. Before I conclude, Stay Calm, Stay safe, Stay Healthy.