Rachna Dattani: We start with the basic question of rebalancing a portfolio. Basically, it is just reassessing, inspecting your portfolio, of the investments you have done and whether it is in line with your financial goals for a long-term perspective. There is a lot of noise at this point in time and there is a little bit of FOMO as well where people are feeling left out with the kind of profits that are made in equity markets. We also need to understand that this kind of market that we have seen in the last one or two years, post the Covid is not the routine.
One needs to understand that expecting a CAGR return of 12% to 15% is the most logical way of approaching your investment rather than an expectation of 30-35% which has happened over a period of last one year which is kind of very different from what markets have always been. So, it is very important to understand and analyse your financial goals from a long-term perspective and review your investments reflect or what you have done in the past, if there is any correction required you just redo your portfolio, rebalance it as per your goals.
Help us understand why there is need to rebalance the portfolio because a lot of investors out there especially when they are looking to invest in stock markets, have the mentality that they should go ahead with investing in a good company and then not look at it at all and that definitely favours a lot of the investors. I am not saying that having that long-term approach is wrong but why do you believe that rebalancing one’s portfolio is important and that could play a major role in getting the most out of it?
Rachna Dattani: When we talk about direct equity investments, having an allocation to equity and debt is equally important. There are times when we have seen negative returns as well in the equity market. The times are changing now. The dynamics entirely is changing very quickly. Previously what used to happen is, we were not too interconnected by globalisation. Now if there is a war happening elsewhere, the impact comes to the equity market.
Just two days back there was a Covid scare, due to which the markets corrected. We saw a 300-point correction over there., I am not saying do not stick to your portfolio, stick to your basic portfolio. A tactical allocation is required which needs to be reviewed. Also if you are very high on equities at one point in time, definitely you need to cut down and review and align it with your long-term goals of investing in gold or investing in debt because there are times when we have seen negative returns. So, aligning your 60-40 or 70-30 equity-debt ratio becomes very important.
What should an idle portfolio look like?
Rachna Dattani: An ideal portfolio should consists of your equity investments, which could be direct equities, it could be your small cases, it could be mutual funds, PMS, Alternate Investment Funds. When we go into debt, you could have a combination of NCDs, other papers like G-sec, SDLs, debt mutual funds. A third category which not too many people prefer but I would still suggest it would be sovereign gold bonds; one you are making interest over there, of course, which is taxable. But from a long-term perspective, if you are going to hold on to it, you are not going to pay any capital gain there. That is also a very interesting allocation which is a must for the portfolio. And lastly real estate, which should be a part of your portfolio as well.
Let us just touch upon the three Rs when it comes to the rebalancing what is your say on that if there has to be three Rs for rebalancing what would those be?
Rachna Dattani: One is review. The second is reflect and the third is redo. A review of your portfolio either individually or with a portfolio manager every quarter is a must. It just gives you an idea of where you are heading, where your investments are heading and are you in alignment with the same. Reflecting upon your mistakes, if there are any, which are made either by entering a wrong sector or a wrong stock because somebody just happened to tell you that the stock looks good and you have made a mistake where the management is not good you need to correct it.
The last is redoing it. After review, reflect if you really feel there is any requirement on redoing the portfolio you definitely need to look at that. Now when I say redo, you do not really need to look at it every quarter in terms of making drastic changes in the portfolio every quarter. But it is just that if there is a mistake while you review or reflect upon it, then there is a chance to redo your portfolio at that point.If somebody is really looking to diversify his or her portfolio at this point in time, what will your advice be in terms of making the exposure in different asset classes?
Rachna Dattani: I would definitely recommend a portion of it going to sovereign gold bonds which are closing but tranches will keep coming by every quarter. If somebody is looking at allocating an x amount in debt for three to five years, there are various NCDs which are AA, AAA rated papers. We had one IIFL Samasta Finance. There are multiple NCDs. Depending on the risk appetite, you can look at AAA, AA rated paper over there. You can also look at G-sec which are government securities or at corporate FDs which are there from Mahindra & Mahindra, Bajaj Finance.