Taking cues from the the way we broke the shackles that the British had bound us with, you could use the occasion of Independence Day to free yourself of investment hassles. Here are some smart ways through which you can achieve freedom to invest and secure your financial well-being.

Consider perpetual SIP

Investors who prefer mutual funds for the long term usually take a systematic approach to investing. A systematic Investment Plan (SIP) helps you invest regularly across markets. But instead of signing up for the long term, many investors prefer SIPs for one-two years. At the end of the term, they have to go through another bout of paperwork for electronic clearing etc. to continue the same arrangement. If you forget, you may not only miss out on saving enough for your various financial goals, but also on potential returns. For instance, if your mandate ended in January or February 2020 and you forgot to renew for the next few months, imagine the potential returns you would have missed.

Portfolio Podcast | 4 ways to break free from investment hassles  Portfolio Podcast | 4 ways to break free from investment hassles  

There is a more convenient option: Perpetual SIP. This mode does not have an end-date. While signing up for the SIP mandate form, you have an option of leaving the end-date column blank. The perpetual SIP will not get terminated. If you stop your SIP, which you can at anytime, the fund house will no longer debit the amount from your bank account. In a nut shell, a perpetual SIP helps you avoid the paperwork for SIP renewal, you’re free from keeping a constant tab on when your SIPs expire.

Remember that taking the perpetual SIP route does not absolve you of periodic review of your portfolio and weeding out the underperformers, as and when necessary. There is also the task of selecting appropriate funds to replace the ones you’ve exited.

Go for multi-year insurance

Many of us are faced with steep increases in health and term insurance premiums. Such an unplanned extra cost can throw a spanner in the works of our budget. But insurance is non-negotiable. Smart policyholders have been purchasing multi-year covers to tide over yearly price shocks. Sure, you will be paying a bigger amount at one go, but you also benefit from possible discounts and save yourself from premium hikes for a couple of years. Be it term, health or auto insurance policy, you can pay premium for two-three years. Thus, you get independence from the premium increases that companies tend to announce periodically. What’s more, insurers even offer decent discounts when you pay premium for multi-year policies. Besides, you get tax benefits; but if you have paid all your premium in a single year, you cannot claim the entire premium amount all at once. You can only claim the amount that is specific to that financial year, as per norms. Multi-year insurance also helps you avoid sudden policy lapses due to lack of premium payment.

In case you wish to sell your vehicle that has a multi-year cover, the buyer may have to take a policy afresh. Do check the fine-print of the insurance for greater clarity or check with the agent/company. If you wish to port your health cover, you may be required to pay premiums again, besides having to take medical tests and so on.

Automate FDs

All of us have fixed deposits (FDs) that have to be renewed periodically. Many sign up for FDs, but at the end of the tenure, go through the process of creating a fresh FD. The process is cumbersome, if you have many FDs across several banks. Enter, auto renewal. With this facility, upon maturity, the FD will be auto-renewed by the bank for the same tenure at the then prevailing interest rates. You can opt for auto-renewal at the time of investing in FDs or during the tenure. This is extremely convenient and true freedom from FD management hassles with a touch of automation.

For investors who create FDs almost every month, there is the sweep-in FD facility. Excess funds are transferred from the bank account to ‘floating’ FD account, thereby giving you an opportunity to earn higher returns. However, the amount is available for withdrawal any time. The tenure of the sweep-in FD ranges from one to five years. You merely have to state the amount you want to hold in savings account, and the rest will be automatically transferred to the sweep-in FD account.

However, auto renewal creates reinvestment risk, as the same investment tenure may not carry the best interest rates at the time of renewal.

Try asset allocation funds

When you invest, your money is at stake. Single-asset investment vehicles capture the ups and downs of that asset. If the asset is equity, your money will go through troughs and crests. In the short term, volatility levels are high for equity investing. This may not be a smooth experience for investors who do not like sharp swings. Assets such as gold and bonds can smoothen the ride, given that they fall less during volatile equity markets. These other assets could also hedge your portfolio against inflation. A balanced portfolio requires many type of assets for optimal returns. An asset allocation fund does all this for you, without requiring your intervention.

Investing in dynamic asset allocation schemes (balanced advantage funds) cannot help you maximise returns when there is a sharp equity market rally from a downturn. It just helps you with lower draw-downs.

Manage the risks
Periodic review of portfolio is necessary even when investing in a perpetual SIP
Dynamic asset allocation schemes cannot help maximise returns during a downturn
The same investment tenure may not carry the best interest rates during auto-renewal
social-fb COMMENT NOW