For now, let's analyse the Portfolio status in July, how close I am to meeting the targets, what kind of changes need to be done etc.
Before I continue, I would like to point out that compared to the April post, there is a slight change in approaching the Current Value for Real Estate Holdings (RE), namely Property Investments. Instead of basing it on cost value, it will henceforth be based on the principal value of the loan paid back to the lender (note that it's just the principal component, not the interest component). I have adjusted the April portfolio as well in this regard.
Figure 1: Portfolio Asset allocation
- There is a marginal drop in the PFs section and will continue to be so for a few more months since I don't plan on investing here until the end of year, for tax purposes. Although there are monthly EPF contributions, their value isn't enough to keep up with the investments in other investment vehicles.
- To prevent skewing of the portfolio towards Real Estate, here on out, RE Investments will be considered as per the contribution towards the Principal Component of the loan. If you have any queries here, I will be writing a post soon on home loan payment system. If you feel this approach is incorrect, please leave a comment below :)
- As I had mentioned, at this stage of life, I can afford High Risk investments and should in fact prefer it. This is reflected in the Equity component as well. The fact that the equity markets are expected to be bullish on a medium-long term basis, this strategy should fit well. However, I do feel that the current allocation of 40% to equity is sufficient, maybe I'll keep it between 40-50% so I have some margin to work with.
- My savings earlier were meagre at best, meeting only 1 month's expenses. As mentioned in my post on being financially sexy, it is essential to have funds available for 3-6 month's expenses, to account for any unforeseen circumstances. As of today, I am close to having 3 month's expenses covered in my Savings account, maybe a quarter or two more to cover for 6 month's expenses.
- One of my deposits matured in the first week of June and I used those funds for the Savings and Equity allocations. The interest rates for deposits are too low to consider this as a good investment asset. I, however, prefer to use this as an emergency fund, in case my Savings account falls short. Besides, it prevents me from making unnecessary expenditures (resist that temptation to buy something when find your bank balance so high!).
- There is a net change of +15.66% in the total asset value of my portfolio. This is not indicative of growth since there is a continuous influx of funds, but doesn't hurt to know.
- Analysis - I think, from risk perspective, the portfolio is in a favourable position. I would have preferred the Low Risk allocation to be about the same as the Risk Free allocation, but I don't think that'll happen. Firstly, the returns on deposits (low risk) are only marginally higher than those on PFs (about 1% difference). Secondly, the added benefits of investing in PFs far outweigh the investment in short-term deposits for the incremental 1% returns. The PF benefits will be covered in other post (work in progress) as well.
Figure 2: Equity Portfolio
The above investments are in the Indian Equity Market, NSE. Since my last post, the Government has changed and the Union Budget for the country was announced recently, hence my portfolio underwent several changes to make the most of these opportunities.
Primary focus of the budget was education, rural development and infrastructure growth (as far as I remember). So, the changes in my portfolio are meant to target these opportunities for optimizing the portfolio growth and value. To do this, I have added a few midcap stocks for increasing growth prospects and increased allocation in a largecap stock for maintaining portfolio stability while still targeting the budget opportunity.
- ENGINEERSIN, FSL, GABRIEL, GAYAPROJ, ZEELEARN are all budget picks for medium to long term. ENGINEERSIN will probably be removed soon, to increase allocation in other stocks. It's currently sitting at a 10% profit, I intend to wait for another 10-15% increase before exiting that counter.
- HCLTECH was removed since I hold FSL (same industry, IT) and it was proving to be a better buy. The sale proceeds would be of better use in sectors benefiting from the budget.
- There is a substantial increase in L&T - this is the largecap I was referring to that would benefit hugely from the budget.
- Marginal decrease in ITC (tobacco industry) due to budget risks and SUNPHARMA, but the long term growth is still intact. Besides, they provide much needed stability to an otherwise volatile portfolio.
- RELIANCE is a fresh buy and it is a very long term pick. The company has been making investments for the past 2 years and returns on these investments are expected a year or two from now. As we all know, stock prices react to future events in advance and I don't want to miss that ride :). Besides, this is a great stock to have in a portfolio, diversified company in some ways but primarily based in the Oil and Refineries industry. I intend to increase allocation here over time, buy on dips sort of strategy.
- I did add quite a lot of funds to make sure I didn't miss the bull run. Hence the high value for Newly Added Funds.
- Analysis - Portfolio Value change in 3 months is about 47%, which includes the 15% funds added. So, were we to discount that, there is an increase of almost 30% in the portfolio value in one quarter. During this time, the index (NIFTY) rose by 12%. I would say that the portfolio has done quite well in this regard. The risk is paying off :)
- Risk and Growth stocks are almost evenly allocated at around 40% with Defensives at 20%. Just from the portfolio perspective, this may look very risky, but if you take the entire portfolio into consideration (non-equity investments as well), this doesn't seem so bad. The role of the equity portfolio here is to provide as high a return as possible, so this would entail higher risks. This is possible because of high asset allocation for Risk Free investments (47%).
Well, the portfolio seems to be doing well, and gradually I am getting closer to the target portfolio. I reiterate, it helps to chart down your portfolio holdings in order to create an optimal portfolio.