How to Clean up your Investment Portfolio?

Investors often see their investment portfolio as a blueprint of a building, which remains constant. However, when it comes to making investments, change is the only constant. It is important to re-visit your portfolio and modify it as per changing times.

You may need to clean-up your portfolio from time to time, to prevent an unnecessary build-up over time. Here’s a brief lowdown on how to spring-clean your investment portfolio, and how it can help you.

1. Work according to your new budget 

Just as a GPS helps you to reach your destination without taking the wrong route, a budget helps you travel on the road to financial prosperity by preventing you from taking any hasty or impulsive investment decisions. It lets you draw a real-time assessment of your net worth, making sure you not only consider your assets, but also factor in your liabilities.

You can curtail unnecessary expenditure and have enough capital for the right investment options. Since you have cash or capital outflows as well as inflows, your budget is constantly changing. Update your portfolio, keeping such changes in mind as the first step.

2. Discard your liabilities and anything else with no returns 

There will be investments you make in various instruments such as bonds, mutual funds, fixed deposits and even savings accounts to name a few. You choose them, based on the objective of multiplying or growing your current assets over time. But just like banks, you too could have your own personal NPAs or non-performing assets.

There could be a corporate debenture that you inadvertently forgot about, which has either lapsed or is giving you a much lesser yield than an FD. It’s time to be rid of it and invest in something profitable. Ideally, your investment portfolio should work like a clockwork mechanism. If one gear is stuck, the clock won’t mark time.

Similarly, if one investment instrument does not render sufficient returns, discard it and opt for more productive avenues to keep your portfolio strong.

3. Review your maturing investments 

Reviewing your investment plan based on your age, attitude towards risk, income, and goals is key. This means you not only look back at what investments you have made in the past, but also ensure that you are choosing the right ones now. A periodic check-up by using tools such as online calculators is therefore, much-needed. Check the FD interest rates now, for instance, and compare with the rates you signed up for.

Use the FD calculator to see what the returns are, compared to current rates and assess how close you are to your goal. Learn from your past and avoid common mistakes while investing in FDs. Finally, consider whether you want to renew it or withdraw the matured funds and invest in something else.

4. Stay abreast of latest updates in financial markets and economy

The financial world out there is complex, dependent not only on what is happening within the country, but also elsewhere in the world. A fiscal policy decision taken by the government of India could see FD interest rates either softening or hardening. Massive selling by foreign institutional investors (FIIs) could result in the value of some of your mutual funds falling. So, it is important for you to be keyed in, by regularly reading financial papers and talking to your financial planner every month to see if you have any investment that needs to be immediately deviated due to current market behaviour.

5. Know that not every bit of information you gather can be trusted

With videos, articles, WhatsApp forwards, and SMS marketing, there is no dearth of information on where you can invest. Financial companies compete to vie for your attention and money. But rather than deciding on an investment based on its publicity, review its past performance and ratings by agencies like ICRA or CIBIL.

Ask your trusted friends on what they think and talk to your financial advisor. If you find any such gimmicky investments in your portfolio, pay close attention to its performance and the fees you pay on it to see if you should retain it or withdraw from it. It is best for you to review instruments based on where you are in your life cycle. For example, the investments suggested for a first jobber are not usually the same as the investment plan suggested for a newly married couple.

Using these 5 tips, you can clean up your investment portfolio and work your way to a healthier financial life.