Personal Finance

Staying on top of your investments

B Venkatesh | Updated on January 24, 2018 Published on February 08, 2015



Monitor your equity investments and seize the right opportunity to realise gains

Should you actively manage your equity investments? This question has been often debated in many forums, and not without reason.

After all, active management could fetch you higher returns. In this article, we discuss the pros and cons of actively managing your equity investments.

Passive or active?

By active management, we do not mean whether you should buy index funds or actively-managed mutual funds. Rather, we are referring to how you should manage them.

That is, you could buy units of an index or an active fund and then hold them till the end of your investment horizon to meet a particular goal.

Or, you could buy the units and keep an eye on the market; take profits when the market climbs up substantially and re-enter at lower levels.

Though it may appear that you may benefit more from your investments if you manage them actively, consider the following issues first.

Active management is not about looking at your equity investments when you have the time and selling some stocks that have gained.

Rather, it is about continually monitoring your investments and seizing opportunities from short-term market movements.

You may be confident now about allocating time in the future to actively manage your money.

But can you really spare the time? We typically believe that we will have more time in the future than at present to pursue our interests.

Second, even if you allocate time to actively manage your investments in the future, the question is: Will you? As humans, our interests and desires change with time.

You may be interested in actively managing your investments in your spare time today. But your interests could well change over time. What will then happen to your actively-managed equity investments?

Third, the fact is that you cannot consistently time the market. How would you feel if you take profits only to see the markets climb up another 25 per cent thereafter?

Or worse still, what if the market declines and wipes out your unrealised gains?

If you are a typical investor, you would regret your market-timing actions. And that could affect your subsequent investment decisions.

Outside help

What if you engage a financial adviser to manage your investments? Even here, you could consider two points.

One, consistently beating the market (the benchmark index) is difficult, even for professionals. This is perhaps why top-performing fund managers do not always stay at the top over a long period of time.

Two, it is not just skills, but “information” that is important to time the market.

Management tips

Typically, portfolio managers, not financial advisers, have the information advantage. If you are managing your investments on your own, adopt these rules.

For your core portfolio created to achieve your life goals, you should take profits when unrealised gain is more than the required annual return.

That is, if you need 11 per cent annualised return to meet your life goal and your portfolio’s actual unrealised gain is 15 per cent, take profits to the extent of 4 percentage points only.

Invest the excess returns in bank fixed deposits.

As for your satellite portfolio, create simple pre-defined rules to take profits — sell if unrealised gain is more than, say, 5 per cent.

It may be worth discussing such rules with your financial adviser as well, if you have one.

Remember this: Your financial adviser does not have to engage in active management to improve the returns on your portfolio; your adviser can add value by simply preventing you from taking emotional decisions that could affect your investments!

The writer is the founder of Navera Consulting. Feedback may be sent to

Published on February 08, 2015
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