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Portfolio Planning: Approaches And Analysis

Sunday, April 20th, 2014 Amritesh no responses

The most critical aspect of investment is planning for it. Most of us are confused about this and end up making a wrong choice. Now in this post we will look at the various investment plans and how can one go about planning their investment. Portfolio planning is very important because a well planned and thought off portfolio will not only ensure capital acceleration but also minimize the investment risk. There are many aspects which one should look at while planning investment.
Planning a portfolio involves few steps following which will help you in designing your Portfolio better and you can manage it efficiently and effectively.

STEP 1: Assessment of Requirements and Needs.
Even before you decide on the Investment options and type of Financial Instruments to be included in your portfolio you have to decide on the tenure of Investment and also plan for the financial obligations which may arise in the future. This is very important because you have to choose till how long and what amount you are going to vest. Also you have to ascertain what you want to do with the capital in future. You have to assess your requirements in future with respect to Family Medical needs, Child’s Education, Rising expenses, Better Standard of Living, Tackling any Financial debacle and ensuring Secured Life for self as well as your family members. After sorting out all this then only one can go ahead with the Planning of a Portfolio.

STEP 2: Analyze the Market Scenario and Cost Inflation.
Investment should not be done just for the sake of investing. It should be well thought off and should take into consideration the external situation too. If an investment earns a return of 8% while inflation is growing at the rate of 10% then the investment is earning a negative return. This type of investment product is not viable for any portfolio. A sound investment should not only cover the rising cost but also should be able to escalate the standard and enhance the purchasing power of an individual. If somebody looks for an insurance cover than the product chosen should be able to provide the best coverage to an individual. Thus all these factors needs to be analyzed before investing.

STEP 3: Selection of Competent Fund Manager.
Portfolio Management requires a lot expertise and experience. Hence to ensure that you get the right advice and manage your investments efficiently you should avail the service of a competent Portfolio Manager. This will not only help you manage your funds better but also help you take wise decision relating to investments. Fund Managers look at your future needs and plan accordingly making optimum use of the resources available.

STEP 4: Choice of Investment Plans.
Finally we come down to the choice of Investments which we need to add to our Portfolio. In consultation with the Fund Manager we should look at the various Financial Product include those products which would prove productive for us in the future. The investment can be made in Life and Health Insurance, Term Policies, Mutual Funds, Equities and Debts Instruments, Retirement and Pension Plans, Commodities, Fixed Return Plans and even in Real Estate. Individual has to understand his investing power, risk tolerance and future needs while planning his/her portfolio.

STEP 5: Diversification of Investments.
Portfolio should be planned in such a manner that investment is widely diversified. Diversification of investment not only helps to minimize the risk but also ensures optimum utilization of various Investment plans available which would be cost effective and ensure best return on the investment. Thus Portfolio should exhibit diversification and include different types of Investment plans which can be deemed as being productive.


Conservative Approach: Here the investors are averse to taking risk and try to minimize the risk as much as possible. Portfolio here is heavily packed by Insurance and Fixed Return investment. The individual prefers lower return carrying no risk as compared to higher return carrying certain amount of risk. In these kinds of portfolio one will generally find a lot of Debt Investments, along with assured return Investments and Insurance policies (Traditional Policies) which provide returns and security at the same time. It gives impetus to Security over Capital acceleration.

 Balanced Approach: This is the most appropriate approach under any given market scenario as here the Portfolio gets the maximum diversification and includes High return investments carrying certain market related risks along with fixed return investments and other Term policies. Portfolio will include investments in Mutual Funds, Equities, Term Policies, Insurances, and Assured return plan as well. This approach gives equal importance to Capital acceleration as well as risk mitigation.

Radical Approach: This option tries to make most of the market situation by investing in high yielding ventures although they carry potential risk as well. The investment here focuses on the Equities market mainly and very little allocation is made in the debt instruments. The investments are made in BlueChip stocks which are considered stable and promise better returns. In order to diversify the Portfolio allocation can also be made in Mutual Funds as well apart from investing in Equities, Commodities and Debt Instruments.

In my upcoming posts I will present some illustrative Portfolios.
Amritesh is an experienced professional in the field of HR, Finance and Compliance. He is currently working in the IT Industry with an US based firm. He took up Blogging as a hobby which eventually turned into passion. He primarily focuses on topics related to Personal Finance, HR, Compliance and Technology.

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