Rebalance your portfolio for better returns

Stocks have got slammed and investor hopes of decent returns have evaporated in thin air. With investors actively rethinking their asset allocation strategies, here are a few pointers that can help you perform the rebalancing act.
With the long shadow cast by the gloom in the markets showing no signs of retreating in the near term, investors are being forced to reconsider the composition of their portfolios. The faith in equities has been shaken as the indices continue to touch new lows every day, and many are seeking succour in relatively safer avenues. Gold, fixed deposits and debt funds have emerged as safe havens.
“Conservative, risk-averse investors would do well to stick to liquid funds, unless their investment horizon is five years, in which case they can look at large-cap funds as well. Also, they need to pare the equity portion in their portfolio to 40%, in case it is more than 60%. Out of the rest, 50% can go towards debt and 10% can be invested in gold. Any appreciation in gold will help cancel out or tone down the losses that you might incur in equities in the short term,” suggests Swapnil Pawar, director, PARK Financial Advisors.
The other asset class, debt, is also finding favour as it is perceived as a relatively less volatile asset class. Says Joydeep Sen, associate vice-president, advisory desk, BNP Paribas Private Banking: “The liquidity is higher and they also offer capital protection in troubled times. One should look positively at fixed maturity plans (FMP), which are offering attractive indicative yields. With debt, the downside is limited and the only perceived risk - that of counterparty default - is unlikely to happen.”
This apart, the traditional favourite – fixed deposits – can also be relied on in times like these. These are almost risk-free and offer good returns as well, with the only drawback being their tax inefficiency.
Going forward, you can look at adding large-cap stocks/funds to your equity portfolio, say investment advisors. Within the equity component, holding on to diversified equity and index funds is advisable. “The equity portfolio should have a bias towards large-cap stocks/funds with the focus more on domestic consumption themes and defensive stocks. The current market situation provides an attractive entry level from 2-3 year perspective. Valuations are attractive at this point of time; however, recovery might take some time and one has to have the appetite to bear some pain and volatility in the short term,” contends Mr Sen.