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Previously, we discussed why spousal involvement is crucial for maintaining good financial health. In this article, we discuss how spousal involvement can help in efficiently managing family’s equity investments.
Two accounts
You must invest in equity for two reasons. One, equity investments via Exchange-traded Funds (ETFs) or mutual funds (MFs) are an important part of goal-based portfolio. If you were to pursue three goals at any point in time, you must have three different ETFs or three different MFs. And two, you must consider direct investment in stocks for your trading portfolio. This is important to capture short-term price movements in the stock market.
Annual rebalancing
The point is you must actively manage both equity investments. Take goal-based investments. If your investments earn more than the expected return, say, 12 per cent in any year, you must sell your ETFs or redeem MF units to take profits above 12 per cent. For example, if an investment of ₹10 lakh earned 14 per cent return, sell or redeem units to take out 2 per cent of ₹10 lakh and invest in bank deposits. This is referred to as annual rebalancing. Your trading portfolio requires more active management. You must actively buy/ sell shares to capture short-term price movements in the market.
To ensure your annual rebalancing does not conflict with active trading decisions, it is best to maintain two separate demat accounts — one account in spouse’s name and the other in your name. If you are the active trader, your demat account should be used for trading portfolio; your spouse’s account can be used for setting up SIPs on ETFs or MFs.
Conclusion
There are two benefits of having you and your spouse manage a demat account each. One, you could be tempted to divert more savings into your trading portfolio by redeeming units in your MFs or selling ETFs. It is not optimal to transfer proceeds from goal-based portfolios to a trading portfolio, even if you are a successful trader. With two separate demat accounts, you must first convince your spouse to divert the proceeds. And two, a separate demat account for SIPs helps maintain a trail of the proceeds from annual rebalancing and to invest in bank deposits. Also, it helps when you want to invest more to bridge any shortfall in accumulated wealth to achieve your goals.
(The author offers training programs for individuals to manage their personal investments)
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