Starting Your Portfolio, Here Are Some Tips Which Can Help!





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As a child, most of us have a habit of keeping money in a piggy bank or some equivalent container. As we grew up we understood banking and similarly instead of keeping in a container we started savings in banks in form of Fixed Deposits, Recurring deposits or savings accounts, which gives a certain rate of return as well.

But what if instead of putting all money into savings or fixed deposits we can diversify our hard-earned money to different channels depending upon risk and return factor, duration, and keeping in mind other factors as well.



What Is a Portfolio?

A portfolio is a term used for a group of investments done by a person to different financial instruments.

There is a famous saying - “Never put all your eggs into one basket”. Dropping the basket will break all the eggs. Placing each egg in a different basket is more diversified. There is more risk of losing one egg, but less risk of losing all of them.

Here consider the group of baskets as Portfolio and eggs in each basket is the money you put into different Financial Instruments.Thus you can create a Portfolio with the following instruments:

1. Fixed Deposits, Savings, Recurring Deposits
2. Equity Instruments/Stocks
3. Bonds
4. Mutual Funds
5. Unit Linked Insurance Plan (ULIP)
6. Bullion

All the above instruments will give you the diversified rate of return, the duration will vary, liquidity will differ. The only motive to create a portfolio is diversification. Diversification is the most important component in helping to reach the financial goal while minimizing the risks.



What You Will Achieve by Making Portfolio?

1. Security of Principal Investment: Any investment should be done only if you are at least getting back your Principal. The term we can use here is “Break-Even Point”. Having a diversified portfolio will guarantee your security of the Principal.

2. Stability of Returns: You can earn consistent returns if you have a good portfolio with stable financial instruments.

3. Liquidity: Unlike Fixed deposits, Equity instruments are having more liquidity. A portfolio should be planned in such a way that it can facilitate good opportunities upcoming in a market.

4. Tax Treatment: By minimizing tax burden yield can be effectively improved. Different investments have different treatment in income taxes. If you have investments in different instruments, you can make more effective tax decisions.



What Are 3 Best Practices to Ensure Better Diversification?

1. Spread your portfolio among multiple Investment Vehicles like stocks, Bonds, Mutual Funds, and even in Real estate.

2. Vary your Risks in the securities. You should not be restricted to only the lowest risk or vice-versa. Ensure the portfolio consists of varying risk levels.

3. Vary your securities by industry. Avoid making industry-specific investments. It will minimize the impact of Industry-specific risks.

The diversification although it is the most important component, will not guarantee zero risks. No matter how much diversification you do there is always a risk if you do any investment.



Creating a Portfolio Is One Time Thing?

As the financial market is dynamic, you should not sit back freely, after you create a portfolio. “Portfolio revision” should be done which ensures monitoring your instrument in regular time intervals. Changes may occur which leads to introduction of new instruments with high returns. This may require investors to revise his/her portfolio by selling or adding securities to the portfolio.



At What Age You Should Invest or Create a Portfolio?

As they say, “There is no age for learning”. Same thing applies to investment. But you should start as early as possible. Try to invest some proportion of Income to SIPs of Mutual funds, recurring deposits. This will ensure the allocation of income as well. 

Always begin with a small amount to ensure consistency as it will not highly affect your income if you take up small initiatives. In my case, I have started to invest in Mutual funds, equity Stocks at the age of 19, as it was my interest area.



Conclusion

Through managing our investments by diversification not only ensure better return but simultaneously benefit capital growth in the long term. According to portfolio theorists, any portfolio with 20 securities reduces almost all kinds of possible risks (not to zero), if you buy a different kind of stocks with different sizes and industries.

Always try to find opportunities in the financial market. An ideal Portfolio is the one that gives the highest return with the lowest risk.


Written By – Utkarsh Samiya

Edited by – Adrija Saha