December 27, 2021

What is Balanced Portfolio? A Complete Guide

Hindustan Unilever Ltd , the country’s biggest consumer goods firm, has halted its famed Lister programme that identified young talent with leadership potential and put them on the fast track with global postings. “Instead of seeing the equity-vs-fixed question as a black-vs-white binary choice, you should be seeing it as a shade of grey.” Instead of seeing the equity-vs-fixed question as a black-vs-white binary choice, you should be seeing it as a shade of grey.

Then, to realign your portfolio to your desired objective, you can make modifications by selling and purchasing shares of stocks. To align your asset allocation with your concept, you’ll need to sell investments that are overweight in asset classes you want to reduce and acquire investments in asset classes you want to enhance. You can sell your risk-free investments and choose to invest more in aggressive funds with bigger returns and more. Your optimal asset allocation—the best combination of stocks, bonds, and other asset classes to invest in for retirement—is a personal choice. There are recommendations to assist you to decide asset allocation, such as a fairly basic method in which you subtract your age from 100 to get the percentage of equities you should possess. Choosing the proper asset allocation requires considering not just how long you have to invest but also, perhaps more significantly, your risk tolerance.

For example, a portfolio of equity mutual funds may be the most appropriate option for achieving long-term goals and objectives. Equity is an asset type that has the ability to outperform inflation while also providing superior long-term returns. However, they are volatile in the short term and are thus only ideal for the long run. Amidst a wide range of investment options, products may be selected basis individual risk profiles, financial goals and investment horizons.

Solution is suitable for your investment

If we feel that due to certain reasons, a particular fund does not fit into our selected portfolio of funds, we recommend our investors to switch their existing investments to better funds. Therefore, investors should have minimum 3+ years of investment horizon for investing in these funds. Tolerance band rebalancing – Under this form of rebalancing, an investor aims to align with original asset allocation as per the percentage deviation in the asset. Generally, investors can have a 5% threshold and check on deviation before rebalancing. The equity portion of this investment scheme aids in the prevention of the erosion of investors’ purchasing power. Since they mostly invest in stocks, they require a relatively smaller quantum of capital investment.

  • When investing in the equity markets, it is important to stay abreast of current trends and evaluate one’s portfolio periodically.
  • Strike a balance between growth and protection to be thrilled when markets are going up and calm when they aren’t.
  • Having a well-balanced portfolio and taking steps to maintain it can help you avoid depending too heavily on emotions when making key investing decisions.
  • While asset allocation, once done, reduces the need in a portfolio of daily monitoring, it does not mean that one does a one-time asset allocation and then just forgets about it.
  • Balancing your risk and return expectations will make the ride much smoother and ensure that you are not taking on unnecessary risk that can lead to a big loss.

The other reason for using derivatives is to generate returns for investors through arbitrage opportunities. As you may know, Arbitrage are risk free profits made by the scheme by exploiting price differences between the spot and the derivatives segments of the market. Here, we will explore the concept of portfolio rebalancing and unravel some of the important aspects surrounding it. This will help investors to learn the concept and also implement it in their day-to-day portfolio construct. This is to inform that, many instances were reported by general public where fraudsters are cheating general public by misusing our brand name Motilal Oswal.

What is the investment objective of the scheme?

There will be times when your investment values will fluctuate, no matter how “safe” it may seem. Balancing your risk and return expectations will make the ride much smoother and ensure that you are not taking on unnecessary risk that can lead to a big loss. It will also ensure that your investments generate higher potential returns to meet your financial goals. Most investors are aware of the benefits of creating a well-diversified portfolio but the real challenge comes in the execution.

What does a balanced investment portfolio include?

A balanced portfolio invests in both stocks and bonds to reduce potential volatility. An investor seeking a balanced portfolio is comfortable tolerating short-term price fluctuations, is willing to tolerate moderate growth, and has a mid- to long-range investment time horizon.

As mentioned earlier, most of the balanced advantage funds in India are taxed as equity funds. In equity oriented funds, short term capital gains are tax exempt up to Rs 1 Lakh in a financial year. The tax advantage of balanced advantage funds may be beneficial for investors who predominantly invest in fixed income investments. To keep a diversified balanced portfolio, consider investing in investment-grade funds like index funds, ETFs, and mutual funds. These investments are extensively diversified as they are meant to expose investors to a whole new stock market index or sector or the entire stock market as a whole. Additionally, you could also consider going global while doing your portfolio allocation.

Select your investment horizon

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Besides, for equity allocation, the more evolved investor can even consider using a smart beta ETF based on parameters such as low volatility, alpha, value and momentum to spruce up the return potential. In life, everything works better when it is balanced and wholesome in nature. For example, a balanced diet that includes the essential nutrients works better than an unplanned one. And the same can be said about fitness, and even studies — institutions often encourage students to be all-rounders. So when it comes to investing, our portfolios need to be balanced, to ensure a optimised asset allocation mix. Another portion of the investments can be into mid-cap equity stocks which are in business expansion mode and small caps which yield greater capital appreciation in the long term.

If we mix things up, we are less likely to experience dramatic drops, because when some sectors encounter tough times, others may thrive. For the equity portion of the scheme, strategy tilt in terms of market cap allocation, style skewness – value/growth/quality and sector preference would be determined using a quantitative framework. Stock / security selection would be a bottom-up approach based on fund mangers’ conviction and model portfolio. The model portfolios are based on the highest conviction ideas of the analyst team.

SBI Mutual Fund / SBI Funds Management Private Limited is not guaranteeing or promising or forecasting any returns. In case there is already an existing SWP, and the investors opts for the SWP facility then both the SWP and SWP facilities will be operational in the scheme. In case, you specify the amount but miss mentioning the frequency for SWP , then the default frequency shall be considered as quarterly.

How do you balance an investment portfolio?

  1. Start with your needs and goals. The first step in investing is to understand your unique goals, timeframe, and capital requirements.
  2. Assess your risk tolerance.
  3. Determine your asset allocation.
  4. Diversify your portfolio.
  5. Rebalance your portfolio.

An over-diversified portfolio can give low returns, especially with the few good performing stocks having minimal positive impact on the overall portfolio. It is essential that an investor’s portfolio is sufficiently balanced because both ‘over’ and ‘under’ diversification are dangerous in the long run. Under this facility, the investor can redeem a fixed amount or a fixed percentage of the cost of investment as on date of registration of SWP .

Mutual fund Investments

Instead of risking all of your money on stocks, a balanced fund may help you invest wisely and safely. If you’re someone with a low-risk appetite, this is definitely the right thing for you. Here are a few product options to build a balanced portfolio and earn higher long-term returns. You can either rebalance your portfolio at a regular interval or just when it becomes plainly unbalanced. There is no right or wrong way to rebalance your portfolio, but once or twice a year should do unless your portfolio’s value is exceptionally volatile.

balancing investment portfolio

The investment objective of the Scheme is to provide long term capital appreciation / income from a dynamic mix of equity and debt investments. However, there can be no assurance that the investment objective of the Scheme will be realized. To provide long-term capital appreciation/income from a dynamic mix of equity and debt investments. At the start of any investment, our systems establish the target asset allocation of the investor.

The portfolio consists of various securities such as bonds, stocks, and money market instruments. Tactical play of Asset Allocation on the base asset allocation model set by an investor and his/her tolerance in terms of price movements. As an example, let’s assume that the base model is 50% equity – 50% debt & the tolerance band is +/- 10%. When the portfolio composition changes to 60% equity – 40% debt, 10% of the equity exposure will be reduced & 10% of the debt exposure will be increased to bring the model back to base (i.e. 50% equity – 50% debt). For instance, during the financial crisis of 2008, there was a 50% decline in the NIFTY index from 6000 levels to 2500 levels, leading equity fund investors to incur sizeable losses. Thus, in hybrid funds, the debt instruments help to balance out the risk presented by equity funds.

It also involves the operations of buying and selling portions of your portfolio. Investors should allocate their money across the investment avenues to get the best out of all. Asset allocation by definition refers to apportioning funds across asset classes to maximise returns and reduce risks. For instance, while equities possesses growth potential, debt offers stability. Thus, underperformance or non-performance of one asset class can be evened out by others, thereby applying brakes on the downside.

The scheme performance will be benchmarked to CRISIL Hybrid 50+50 – Moderate Index TRI. • Then one needs to also assess what is the amount of risk he is willing to take or is capable of tolerating. By entering your personal details, you hereby authorize Mirae Asset Mutual Fund and/or its authorized service provider to contact you and this will override any NDNC registration made by you.

Within an investment portfolio, the focus should also be on diversification and optimal asset allocation. When investing in the equity markets, it is important to stay abreast of current trends and evaluate one’s portfolio periodically. Churning equities or changing asset allocation should be done after careful evaluation, to achieve the perfect balance for long-term wealth creation. Investing time in being updated can pay rich dividends in the long run and as summarized by Benjamin Franklin, an investment in knowledge pays the best interest. The fund manager will determine asset allocation between equity and debt depending on prevailing market and economic conditions. The debt-equity mix at any point of time will be a function of various factors such as equity valuations, interest rates, view on the asset classes and risk management etc.

How to rebalance portfolio and what are the portfolio rebalancing strategies? We first need to understand the triggers for portfolio rebalancing and then understand how to actually rebalance the portfolio. A change to the base asset allocation may be warranted depending on which of these two occur earlier. For instance, an investor’s base asset allocation model could be a 70% equity – 30% debt with a trigger of +/- 7.5% & a rebalancing frequency of 12 months. If, in less than 12 months, the equity portion of the portfolio increases to 77.5%, the investor may want to trim the surplus exposure (i.e. 7.5%) & allocate the same to debt. Alternatively, if, after a 6 month period, the equity portion increases to 75%, the investor may trim the surplus exposure (i.e. 5%) & allocate it to debt.

balancing investment portfolio

Fund managers duly back-test these models using historical data to see if the funds’ investment objectives can be met. A balanced investment strategy is a method which investors can adopt to build a healthy portfolio. A suitable combination of investments can help in balancing the risks and the overall return from a portfolio. A balanced portfolio can consist of different types of stocks which may include dividend-paying stocks, small caps, and mid-caps as well. To understand how to create a balanced portfolio, you first need to know how to make a portfolio.

Anita Quinn
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