After establishing the broader outline through the process of Financial Planning, the next crucial step is to create a detailed investment plan. Investment Planning is the process of identifying effective and highly personalized investment strategies in accordance with your risk appetite i.e. to match your current financial situation and future aspirations (life goals and objectives) with your financial resources.
There are various investment instruments and asset classes to construct an investment portfolio with such as equity, debt, real estate, precious metals, currencies, etc. By helping you set out clear and measurable goals, we can craft an investment plan reflective of your needs and curate the right mix of investments that match each of your goals.
The important aspects of investment planning which affect the decision about your asset allocation and mix of investments are: –
Regular income/capital appreciation
Understanding your Investor profile is important as it paves the way for crafting your Investment Portfolio. Usually, investors are categorized broadly into the following investor types based on their unique risk appetite:
Conservative (Low-Risk Tolerance): Such portfolios comprise mainly of risk-averse assets such as Debt and a small portion of Equity (blue chips).
Balanced (Average Risk Tolerance): This refers to portfolios with an equal emphasis on Debt and Equity.
Growth (High-Risk Tolerance): Such portfolios comprise mainly of Equity and a small portion of Debt.
High Growth or Aggressive (Very High Risk Tolerance): This refers to portfolios where Equity forms more than 70% of the portfolio and constitutes a proportion of small and micro-cap investing.
The core of the investment plan is Strategic Asset Allocation (SAA), a long-term investment strategy to generate targeted incomes in accordance with the risk appetite. It builds purely on the needs and preferences of the individual and can, accordingly, be tuned and tailored.
Having a Long-term focus is great. But the long term is just a collection of numerous short terms that need to be managed by another investment strategy, which is Tactical Asset Allocation (TAA), which is view-based as opposed to Strategic Allocation, which is need-based. It infuses greater flexibility to asset allocation by enabling you to factor in market timing and relative asset-class performance and add greater value to your portfolio through short-term adjustments in asset allocation such as:
Lump-sum investment: To take advantage of favourable market conditions by investing in one go to reap the benefit of the market corrections.
Profit booking: When the markets become too expensive with unfavourable evaluations, one can go for profit booking to protect downside from a potential downfall.
Systematic Plan: Owing to volatile market conditions, it is advisable to invest through a wide Systematic Transfer Plan (STP). STP staggers investments over a period of time to capitalize on the market movements.
Expected big withdrawal: Due to upcoming financial goals, funds can be parked in liquid instruments.
Creation of a small tactical investment portfolio in case of an aggressive investor where most of the financial goals are already well covered through a strategic portfolio (core portfolio).
Investment Planning is a dynamic and continuous process, as it requires regular monitoring, reviewing and rebalancing of the portfolio composition, where necessary. Portfolio rebalancing may be necessary when your portfolio has deviated from your targeted strategic asset allocation, infusion of fresh capital or when your needs, targets or risk tolerance change.