You have worked hard all your life to create savings and investments. You reach a stage where your portfolio needs your regular attention. First of all, you must pat yourself on the back for getting here. You are among the few people in India who own financial assets.
Having worked so hard on creating an investment portfolio, you wish things were much more straightforward. You figure out that bit by bit, you have piled up stocks, mutual funds, insurance policies, bonds, public saving schemes over the years. As you sift through them, you wish if you had help in understanding them.
A friend recently complained about 53 schemes in his mutual fund portfolio. Another relative spoke of numerous ‘money-back’ insurance policies he bought when a few friends and relatives turned insurance agents. Another elderly gentleman told me that he has no idea about the shares he owns. Working in the Middle East for over 25 years, he kept piling up stocks on suggestions from friends and relatives.
In your quest to secure your financial future, you may want to incorporate simplicity. It will save you complications later.
Mutual funds
There are over 8.3 crore mutual fund folios. Whenever you buy a new mutual fund, unless you mention it otherwise, you will be allotted a folio number for your investment. You can do with one folio for all your mutual funds.
At the same time, it may be a good idea to own not more than 8-10 mutual funds over your lifetime. Yes, you got to take professional help for this. However, you need to ensure that your advisor knows you want simplicity. Mutual funds are supposed to make your investment in multiple asset classes easy. However, with a diverse set of folios and schemes, you will find it difficult to track performance. Mutual funds and distributors get an incentive to sell new mutual fund schemes to you. You have to figure out where to stop and how much is enough.
Equity shares
Own shares if you have enough knowledge about those businesses. If you think you do, you can invest in a few fundamentally strong companies that would give you long-term value — buying shares just because your friends do makes no sense. You will end up owning businesses that are not aligned with your personal goals. There are many tools online to arrive at a portfolio of shares in 8-10 companies. Take professional help to discuss companies that you could be of interest to you. Start by getting rid of the shares of companies, of whose businesses you have no idea at all. You may also want to get rid of multiple demat accounts you hold. That would be an excellent first step towards keeping things simple.
Insurance
Many people own insurance policies for reasons that are more emotional than logical. Many friends and relatives do insurance selling on the side and you end up buying them. When an agent aggressively sells a plan to you, it would be good to think about the reason for you to buy it. Insurance is primarily protection that you take against risks to your life or valuables, it is not an investment. A good life insurance policy is a must. It would help if you also had comprehensive medical insurance. However, you may want to steer clear of insurance as an investment idea.
There is much push given to unit-linked insurance plans (ULIP). Many insurance firms also claim they are better at fund management than mutual funds. However, better fund management is just one of their functions, besides making promises to you. Mutual funds, on the other hand, only have one task. Their core competency is to manage money. If you have already got a lot of ‘money-back’ or ULIP policies, you may want to wind down a few. Buy insurance for protection and mutual funds for investments. Please keep it simple.