How To Build Your Mutual Fund Portfolio

A portfolio is simply an investment or group of investments designed to maximize returns while minimizing risk. A mutual fund portfolio is the same thing, an assortment of mutual funds designed to maximize returns based on your personal risk tolerance. To get started planning YOUR mutual fund portfolio:

1. First, evaluate your Risk Appetite
2. Next, decide Your asset allocation
3. Then, allocate your cash.

Risk Tolerance

Risk tolerance is your ability to handle (tolerate?) the inevitable declines in the value of your investments (no one needs “help” handling increases!). Risk tolerance is not actually a quantifiable figure but is instead a subjective evaluation that depends on both practical and personal factors:

1. Your available funds

Only invest money you don’t need to cover your everyday bills and expenses (or anticipated expenses, like upcoming medical bills, college expenses, etc). The less you “need” the money you’re investing, the higher your risk tolerance.

2. Your investment time horizon

Risk tends to decrease the longer you hold on to your investments. The shorter your time horizon—the amount of time you expect to hold your investments—the lower your risk tolerance.

3. Your personal aversion to risk

Do you have a tendency to avoid risk … or seek it out? The more you can stomach risk, the higher your risk tolerance will be in terms of investing and the higher the potential reward.

Over longer time periods, risk and reward typically go hand-in-hand: the greater the risk you can tolerate, the greater your possible rewards. Based on your available funds, time horizon, and risk aversion, you can decide how aggressive or conservative your ideal mutual fund portfolio should be.

• Aggressive - Accepting bigger risks for the long-term potential of bigger rewards
• Moderate - Limiting risk somewhat while also limiting potential reward somewhat
• Conservative - Limiting risk while also limiting potential reward

Asset allocation is the process of buying various types of stocks, bonds, mutual funds, ETFs, or other securities in order to create a diversified investment portfolio. The relative risk and reward of a mutual fund generally depends on security type it holds. Based on the different risks associated with different types of funds, you can allocate your assets across different funds to make sure that your investment is exposed to the right amount of risk (and potential reward) for your personal financial situation.

HOW TO DECODE YOUR FORM 16

If you are an employee, then by now you should have received your Form 16. This form is important to you from the tax filing point of view, as it shows how much TDS has been paid on your behalf by your employer through the year, by deducting it from your salary on a monthly basis. This form is your proof of TDS.

However not everyone understands or even goes through their Form 16 to see if everything is correct. Let’s go through the different components of this very important form, and we’ll see how simple it all really is.

Components of your Form 16

The first page of your Form 16 will begin with relevant details under Part A, such as:

• Your employer’s name and address
• Your employer’s Permanent Account Number (PAN) and Tax Deduction Account Number (TAN)
• Your name and designation
• Your PAN
• Which year the Form 16 is for (for the period 01/04/2010 to 31/03/2011), as per assessment year 2011-12

It will move on to provide a tabular summary of your tax deducted per quarter.
The tax deducted by your employer and the tax remitted by your employer on your behalf should be equal. If the company you are working for deducts tax from you, and does not pay it to the Government on time, then the company has to pay 1.50% interest per month of delayed payment.
Even if the company does not deduct tax from you or accidentally deducts less tax from you than it should, it still has to pay tax to the Government, which it will then recover from you.

We move on to Part B – Details of Salary Paid and Any Other Income And Tax Deducted

Part B begins with your Gross Salary – how much you have earned during the year. Your Gross Salary can be found by going through your full financial year’s salary slips (April 2010 to March 2011 – both months included), and adding any additional income such as perquisites, or variable pay i.e. Performance Linked Pay (PLP) that you might have received during the year.
You should also include any “Profits in lieu of Salary” such as the full and final settlement in case of resignation / termination from a former employer, or if you are covered under a Keyman Insurance Policy and you have received a payout from the policy, or from a provident fund.
You should subtract any meal coupons you have opted for during the year as this is not taxable income.

So,

Gross Salary = Total Monthly Gross Salary received
                       + Gross Performance Linked Pay received, if any
                       + Gross Perquisites received, if any
                       + Gross Profits in lieu of salary received, if any
                       - Meal Coupons opted for, if any

Remember, your gross salary is taxable.

The next step is to deduct your allowed deductions.

These include, subject to their own rules, the following:

1. Conveyance Allowance ( 800 per month maximum)
2. Leave Travel Allowance (LTA) that you have claimed during the year, supported with actual travel bills
3. Medical Allowance that you have claimed during the year, supported with actual medicine bills
4. House Rent Allowance (HRA), supported with actual rent receipts
5. Payment from an approved Superannuation Fund / Provident Fund
6. Amount received due to Voluntary Retirement
7. Retrenchment compensation

… and so on.

If you have a home loan on which you are paying EMI, this should be incorporated under ‘Income from House Property’ as a negative figure, as it is not an income but an expense for you. Your EMI has 2 components in it, interest payment and principal repayment. Each one is tax deductible up to a certain limit, depending on whether your property is self occupied or you have leased it out. If it is self occupied, interest payment is tax deductible up to 1,50,000 per financial year, and principal repayment is tax deductible up to 1,00,000 per financial year. If it is leased out (aka let out property), interest payment is fully deductible, principal is deductible up to 1,00,000 per financial year, and the rental income you have received is added to your total income for the year.

Countinue Reading:

Do You Understand Your Form 16?

Macro-economic factors still support gold as safe-haven asset

By Chirag Mehta - Fund Manager Quantum Gold SAving Fund

Gold prices saw a sharp sell off during the month of June 2011, but ended with an 11th consecutive quarterly gain. However, with the authorization of an austerity plan which involved budget cuts and asset sales to reduce the crisis in Greece, and to qualify for the bailout made by Greek lawmakers, Gold prices slumped as a safe-haven appeal at the end of the month.

Also, markets exited the US Federal’s bond‐buying program and since then, the Central Bank is yet to come up with additional monetary stimulus. Thus, with the plans of rescuing Greece from its crisis and with the end of QE2, gold was prone to a speculative sell off on lack of triggers to pull gold prices higher.


As measured by the London AM Fix, gold prices declined by -1.9% for the month. However, for the quarter ended June 2011, it’s prices increased by +4.9%.

Mixed set of economic data and the ongoing sovereign debt issues in the Euro zone led to increased volatility in the dollar and hence affected gold prices as well. The gold sell off began after the Federal Reserve's Open Market Committee (FOMC) meet boosted the dollar as Federal chairman, Mr. Bernanke avoided indications of future easing measures and commented favorably for the dollar. Additionally, efforts by Greece to stave off the Euro zone’s first sovereign default led to further selling. These factors along with technical selling aggravated the decline of gold prices.


Gold Outlook

The correction in prices coincides with the seasonal slack in demand. However, if the price falls further, we can expect gold purchases to emerge from traditional consumption centers despite the seasonal slowdown. Demand in India has been growing at 10% to 11% over the last year which in itself was a record year. China’s demand for gold will grow by at least 20% this year and is expected to double in the next two years, said Zhang Bingnan, deputy chairman of the China Gold Association. A key reason for a correction in gold prices is the long-term fundamental change in emerging markets as wealth increases and inflation stays high.


Outlook:
There does not seem to be much change for gold in terms of fundamentals. The sovereign debt issues have not been solved but instead, the possibility of a solution has been postponed by bailing out Greece as policymakers unveil one more rescue package. While it is a positive sign that austerity measures have been demanded along with the bailout, it is yet to be seen how much of it really materializes. Also, the US has avoided quantitative easing measures this time around but it has neither increased rates nor announced any exit strategies. It also remains to be seen until how long the Federal can keep up with this muted stance.


There could be a correction in Gold prices in the short term if the dollar appreciates further, and this could be an opportunity to buy gold. Gold is being seen as a currency and the macroeconomic factors still lie in favor of gold, making it stronger as a safe haven asset. The global economy is highly fragile amidst high risks, especially with the sovereign debt issues because of which investors are increasingly losing faith on paper currencies and are leaning towards gold as a security as they diversify from the paper money.


An outlook on gold by Australian Government agency, Australian Bureau of Agricultural and Resource Economics (ABARE)

Gold may climb 23 percent to average $1,500 an ounce this year, up from a March prediction of an 8 percent gain, because of concern over global budget deficits and inflationary pressures, an Australian government agency said. Prices may advance a further 3 percent in 2012 to average $1,550 an ounce, the Australian Bureau of Agricultural & Resource Economics & Sciences said in a report.


The report cites the following reasons that would buoy gold prices higher:
-Uncertainty about the ability of many developed economies to stimulate economic growth and control growing budget deficits is expected to encourage investment demand for gold as a lower risk or safe haven asset.


- Emerging inflationary pressures in some developing countries such as China and India, could also support demand.

- Investment demand for gold is likely to benefit from the perception that its value is eroded less by price inflation than are the values of other asset classes.

Gold demand from risk-averse investors is expected to remain strong as political and social unrest continues in some parts of the world, particularly the Middle East.

Positive outlook for Indian equities

By Atul Kumar - Fund Manager Quantum Long Term Equity Fund

During the month of June 2011, BSE Sensex gained 2.22% as compared to its level in the previous month. The narrow index i.e. BSE 30 did better than the other broader indices such as BSE 200 and BSE 500. Continuing their last month’s performance, FMCG and capital goods were among the best performing sectors. Real estate performed poorly and was the major loser followed by Oil & Gas and Metals during the month.

FIIs were net sellers to the tune of approximately USD 1.48 Billion in June 2011. Calculating from the start of the calendar year to date, FII net flows have been negative and stand at USD 382 Million. On the policy side in India, clearances were approved for some mining blocks, spreading a wave of relief among corporate and individual investors, given the delay in past few months. Recently, the oil regulatory body also got dragged into controversy for favoring a few players at the cost of national exchequer. The list of nexus between corporate houses and others parties gets bigger.

RBI released its monetary policy in the month of June 2011. As expected, the policy rate was increased by 25 basis points. In May 2011, inflation stood at 9.1% and given that it continues to be above the comfort zone of the RBI, future rate hikes are likely to occur.

The Government of India finally raised the prices of diesel and cooking fuels during the month. There was a decent price hike in diesel, LPG and kerosene

which was required, in order to bring down the losses of oil PSUs in India. The Government also cut excise/custom duties for these fuels, which will add to the fiscal deficit which is likely to shoot beyond the targeted 4.6%.

India is expected to perform better than many other economies in the future, bringing forward a number of opportunities for Indian companies. While inflation, slow government policies and weak global environment are among the key risks, we remain buyers of Indian equity for the long term.