Five lessons for investors from the Modi govt’s cabinet reshuffle
The Narendra Modi government rejigged its Cabinet, inducting new ministers and asking some old ones to go. It also formed a new Ministry of Cooperation. Head of key ministries–home, finance, external affairs and defence–were retained.
Just like the central government assessed and made changes to its ministers, investors need to relook and rebalance their portfolios.
EVALUATE PORTFOLIO PERFORMANCE REGULARLY
Regularly evaluating your portfolio is the key to achieving financial goals. If you have a mutual fund scheme in your portfolio that you believe has not been performing well, evaluate it and exit. But before you withdraw, assess it on a few parameters.
First, check whether it has better returns than its benchmark. Then, compare the scheme to its peers and evaluate its performance. Finally, give it four quarters before finalising your decision. See if the underperformance is temporary and whether the fund manager isn able to make the course correction. If things don’t look up for four quarters, exit the scheme keeping taxation and exit load in mind.
You should also focus on maintaining the asset allocation. Suppose an investor has a portfolio of 70% equity and 30% debt. If equities run up significantly, his asset allocation can go for a toss. Therefore, you must review your portfolio regularly and restore the balance.
VENTURE INTO NEW PRODUCTS OVER TIME
The National Democratic Alliance (NDA) went for cabinet expansion after completing half of its second term. It also added the Ministry of Cooperation after being in power for over seven years.
As investors, you must also start with the traditional, tried and tested, plain vanilla products like diversified equity mutual funds, bank fixed deposits, liquid funds, provident funds, and so on. After you mature as an investor and get comfortable with different asset classes, only then you must add other products after thoroughly knowing their risks and benefits. For example, investors should look at thematic funds, sectoral funds, or strategy-based funds only after they have some experience of investing in equities.
