Investors should realise that individual-specific portfolio creation has no one-size-fits-all solution

Going on a solo trip is arguably one of the best gifts one can give oneself. Whether it is to explore new cultures, to make new friends, or to reconnect with those across the globe, going on a trip alone often requires stepping out of one’s comfort zone. But those who set out on an adventure of their own are usually rewarded with the creation of the most special memories-Agoda Director

Apnaa Apnaa Kshetra Sabka, Sabka Apnaa Apnaa Khel.

Apnai Aapni Ranneeti Sabki, Nakal Adhiktar Fail

Translation: Everyone has his own area; so is everyone’s game.

Everyone has his own strategy, imitation mostly fails.

Investment is so individual-specific that merely emulating another’s investment portfolio may not be the right solution. Simply put, it cannot be a universal success formula.

Creation of an investment portfolio requires identification of a goal, it’s time horizon, one’s risk-taking ability, priority of goal and liquidity requirements. It is like cooking a dish that requires ingredients in specific quantity. The moment the quantity varies, the taste of the finished dish will be below the desired expectations. As no two investors would have same requirement and risk appetite, the portfolios ought to be different.

A first-time investor must consider the following to build an investment portfolio:

Identification of a financial goal: Investment must be with a specific goal in mind. The financial goal must clearly be defined with a budget and time horizon. This will help in deriving the investment amount be it in lumpsum or staggered over a period. One may have to curtail expenses in order to invest adequately for achievement of financial goal.

Define priority of goal: Defining priority or urgency of goal helps to determine if the time horizon can be stretched in case investment corpus is inadequate for achieving the goal budget. Low priority goals such as planning vacation, purchasing a bike/car, etc. can be deferred in such scenarios as they do not significantly impact.

Assess risk profile: Investors need to self-assess their risk profile. After all, risk and return go hand in hand. The higher the potential return of an investment, the higher the risk. However, there is no guarantee that one may get a higher return by taking a bigger risk. Generally, the longer the time horizon, the more aggressive an investor can be in their portfolio and vice-versa.

Understand liquidity requirement: Liquidity of investments is also an important criterion to be considered while creating a portfolio. Liquidity must be aligned with the time horizon of the goal. Investment portfolio built for short-term goals must not be locked for long-term else the purpose of creating a portfolio will get defeated.

Being mindful of the above points, a portfolio must be created. For creation of portfolio, various asset classes may be considered which includes, equity, debt, cash and money market, gold, real estate, etc. Some of the asset classes like real estate or gold may require large ticket size which may be difficult for retail customers. First time investors could start building their portfolio by investing in mutual funds. Mutual Funds provide easier investment entry with the ticket size as low as Rs.500. Moreover, salaried investors, who wish to stagger their investment, could go in for mutual funds through Systematic Investment Plan (SIP) that helps to mitigate market timing risk and ride volatility in markets.

The portfolio building strategy would not only be different for different investors but also for the same investor for different goals. In portfolio creation, there is no one one-size-fits-all solution. Investing is like painting. There are only so many colours. It is how you combine them that sets you apart.

To draw an analogy, let us consider two patients having similar symptoms. If a doctor gives the same medication to both the patients, it may adversely impact one of them or both. Any course of medication can only be determined after carrying out proper diagnosis for every patient separately, failing which the treatment may not help the patient’s recovery.

Similarly, investment portfolio can be created and customized after ascertaining and assessing investor’s goal, risk appetite, time horizon and liquidity requirement. However, for a first-time investor, it is advisable to seek the advice of an investment expert for a tailored investment solution.

Create your own dish, own painting and own portfolio, understanding your own requirement and the outcome would be worth your efforts.

(The writer is senior Vice-president, SBI Funds Management Ltd; Translation and text is by Himanshu Hemrajani, Dy. Vice-president, SBI Funds Management Limited)