Right way to build your debt portfolio
An investor should have a clear policy regarding distribution of his portfolio among various asset classes. Often such a policy is framed, depending more on the prevailing situation and not with some careful thought, writes Arnav Pandya.business Updated: Nov 07, 2008 00:09 IST
An investor should have a clear policy regarding distribution of his portfolio among various asset classes. Often such a policy is framed, depending more on the prevailing situation and not with some careful thought.
The debt part of the portfolio needs proper structuring so that it can generate necessary income on a regular basis. Investors often transfer certain parts of the earnings from equity towards debt to build the required amount of corpus. While doing so, one should keep in mind that the equity component also holds growth possibility.
There is one way to build a good corpus of debt and that is through regular transfer of amounts towards this area. In many cases the process does not remain on track because as situation changes in the market there is a change in the original plan.
An investor, who has decided to put Rs 50,000 in debt investments, reduces the amount when there is a bull run. Due to such cases it is often difficult to see a situation where the investor is able to regularly contribute to build the debt portion of the portfolio. A one-time effort will be effective only when the amount is very high, but it is important for small investors to make it a regular piece of work.
Amount of investment
Another point that needs attention is the amount that will be transferred to the debt side.
Investors often link this to a part of the total investment. Some investors transfer the dividend earned from equity investments to debt, others transfer a part of gains made on equities. However, these routes don’t assure availability of a regular amount for transfer each year. Irrespective of the means used for the transfer, the value has to be significant in size for it to have any effect in terms of earnings of the debt part. One of the common strategies used by investors is also to enter into high dividend yielding stocks and transfer the dividend earned to the debt side.
Regular review of the entire investment and the process ensures that the amount being transferred is right and there is a significant debt portfolio being built.
This will result in regular return for an investor that will be a means to build wealth over the long-term. It also proves to be a relief during tough times when other income might get affected. Investors can use various means at their disposal to build such a plan for themselves and earlier this is started the better.