How to build a smart investment portfolio

Disclaimer: This story is for informational purposes only and should not be taken as investment advice.

Right options and timing is everything when starting an investment portfolio. With numerous options that have taken over the market today, ‘smart’ investments are often the most sought after.

Investing in equity markets can be quite risky and at the same time garner high returns. While investing in debt funds can assure only modest gains.

Similarly there are other investment options such as investing in gold, real estate, commodities which are different asset classes. At some point or the other every investor faces the dilemma of how much should be invested in what asset class.

Building the right investment portfolio can be considered both an art and a science.

So to end the year of 2017 here are a few tips on creating a smart investment portfolio.

Setting financial goals

Many young people rarely, or never, invest for their retirement years. Unless you know what you need the money for, setting aside money for investments can become pointless.

When setting financial goals, investors should take into account short term and long-term goals. Short-term goals could be achieved in a span of two years, whereas long term goals may stretch beyond five years.

Goals can be defined by different individuals as – buying a house, getting married, children’s education and retirement funds.

Funds allocation as per risk appetite

After setting of goals becomes clear, it is important to assess the risk an individual can undertake.

Multi-cap mutual funds can garner up to 12% returns over a long period of time. However investing in mutual funds may not necessarily exempt you from paying taxes. ‘Wherever you go, the taxman may follow.’

Yet, the need for an ‘optimal’ portfolio is the need of the hour.

“Five or six good, manager’s funds very different from each other should be bought. The performances of these funds will be good backed by handsome returns and risk being moderated,” Feroze Azeez, Anand Rathi, online stock trading and advisory told Zeebiz.

Pick the right investments

Cherry picking through investment options can be a tedious task without the help of a financial advisor. Given all the information about investments an investor can make an informed decision.

Equity investments is often advised to be in the form of holding stocks or equity mutual funds or ULIPs with an equity option. They are however considered as high risk investments.

ULIPs offered by insurance providers which enable investors to invest a part of their insurance premiums in various funds like debt fund, equity fund, money market fund and hybrid funds.

"ULIPs come with an insurance cover in addition to investment. But ULIPs invest in relatively low risk products as have to promise sum assured irrespective of whether the plan makes money. So the potential of returns is also lower. They also provide tax breaks under Section 80C. This is restricted in case of MFs except ELSS products," Ajit Narasimhan, Category Head - Savings and Investments, BankBazaar.com said.

Mutual funds on the other hand offers easy liquidity wherein investors can easily sell their shares and receive the funds in a short period of time, usually within one or two business days.

Equity linked savings schemes or ELSS has been said to offer investors better returns that other tax saving schemes.

Investing in debt funds can be said to be ideal investments for conservative investors. They provide investments in fixed income securities issued by the government and companies. And provide interest rates in line with fixed deposits.

Periodic review of investment portfolio

Regularly checking up on your investment kitty is essential to see how well your finances are growing. This could mean review of financial statements from mutual fund portfolios. There are software's designed to build investment portfolios with the right asset allocation but they cannot be relied on completely.

Also Read:

• Here’s what to do if you can’t manage your mutual funds portfolio
• How much you need to invest to create a corpus of Rs 50 lakh
• How to earn Rs 50,000 monthly via investing in mutual funds?