The division of wealth is the implementation of an investment strategy. It seeks to balance between risk and reward by adjusting the percentage of each asset in the investment portfolio, taking into account factors such as investor risk, tolerance, objectives and maturity. It focuses on the features of the entire portfolio. Every investor should plan a good asset segmentation before investing in different asset classes. The diversification will provide a clear roadmap of what the investor can get in terms of returns from a particular asset class over a period of time.
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Factors Affects Division of Wealth
While taking decision of division of wealth, do remember below four important factors.
- Investment Term
- Investor’s Risk Capacity
- Benefits After Paying Tax
- Variety of Portfolio
There are lots of things comes in investors mind. Below are the main four components need to consider.
- Do I need regular cash flow?
- Do I need lump sum amount to fulfill my specific requirement?
- Do I want to build my wealth to secure my future by planning for retirement?
- Do I wish to buy a car or house or do I need more money for my child education of higher education? Or how many monies will be need if I want to go to abroad trip?
Capacity For Taking Risk
- How much risk I am willing to take?
- Can I prepared to bear loss or climb down in amount for short term of investment amount for wanting long term profit?
- How much profit do I expect from a particular investment?
After taking consideration of my risk profile can my portfolio is it diverse to make me profitable for a specific time to fulfil my needs.
Options Available for Division of Wealth
When the investor is positive about investment plans then in such cases investors will has numerous options to make portfolio. The various asset classes are given below.
- Government security/ bonds
- Mutual funds
- Real estate
- Direct equity( stock)
- Aggressive portfolio: 75% equity , 20% loan, 5% gold.
- Balanced portfolio: 50% equity 40% loan and 10% gold
- Traditional portfolio: 40% equity 50%loan, 10% gold
In this case, equity investments can be made through mutual funds or direct equity. Debt investments can be made through Government Bonds / Securities, Fixed Deposits etc.
Depending on the type of investment, a person can decide how much to invest in gold. Aggressive investors can keep 5% gold in their portfolio and traditional investors can keep 10% gold. The division of wealth will be different for each investor according to the time limit, risk potential, profit expectation.
3.Dedicated Equity Portfolio
Equity portfolio/ investment which depends on time limit can divided in three different types.
- Short Term Equity Investment: This investment is made for some days to 6 months. In this case, the portfolio is associated with very high risk.
- Medium Time Equity Investment: This investment is made for 6 months to one year. In this case, the portfolio is associated with high to medium risk.
- Long Term Equity Investment: This investment is made for more than 1 year. In this case, the portfolio is associated with medium to low risk. SIP is the good source to create long term equity portfolio.
Moreover, equity portfolio / investment is depending on market cap which classification have given below.
- Large Cap Equity Portfolio: This is such type of portfolio which has more than 30 thousand corers market camp stocks. in this type of portfolio bigger companies are there which are grown over time and their position is strong or else they have strong balance sheet
- Mid Cap Equity Portfolio: This is such type of portfolio which has up to 10 to 30 thousand corers market camp stocks. In this type of portfolio bigger companies are there which has capacity to grow over time.
- Small Cap Equity Portfolio: This is such type of portfolio which has less than 10 to 30 thousand corers market camp stocks. In this type of portfolio smaller size companies are there. Because of this, such type of companies takes lot of risk, compare to large and mid-camp portfolio.
- Multi Cap Equity Portfolio: This is the type of portfolio which has mid, large and small type of camp stocks in which risk is well diversified and therefore, it will expect to be more profitable.
In Attractive portfolio mid/ small camp area will have vital division role as the investors are prepared to bear high risk. (large camp – 30% to 40%, mid small camp 60% to 70%). In Balanced portfolio should be there 50% large camp and 50% mid/ small camp. Conclusion
Finally evaluate the investment from time to time for any investor. It is very important to take necessary corrective measures during the investment to increase the profit and meet the ultimate objectives.
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