Success mantra for 2013: Keep it simple

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SummaryLetís start with the basics. If you do not know where to invest your money, park the surplus in a liquid fund, so that you earn at least more than the bank savings rate.

The new year is no different as asset allocation, in line with your risk profile, remains the key for long-term wealth creation

Letís start with the basics. If you do not know where to invest your money, park the surplus in a liquid fund, so that you earn at least more than the bank savings rate. Then, in line with your risk profile and liquidity needs, make your investment policy statement. This will also enable you to have the asset allocation and portfolio rebalancing process in place.

Then, you can look at asset classes and take an overweight call, if required, in any of the asset classes ó equity, debt, gold and real estate. Having a strategy is important, as volatility and the fluid political environment across the globe can make you either chase returns or make you retreat into fixed income products.

What helped in 2012 will also be your friend in 2013 ó asset allocation. For debt instruments, you should go in for the longer duration ones to ensure that you continue to get the returns, locked in now. If not, then for 12 Ė15-month period where dynamic bond funds can also be considered. You need to be sure what gives you comfort ó the accrual strategy, which will give consistent return without being volatile, or an actively managed fund, which gives you a higher return accompanied with volatility.

With the expected downward movement in interest rates, it is recommended to lock in funds marked for debt into a longer duration ó 18-30 months. This will ensure that you reduce the reinvestment risk. Say, if you are going to lock-in for 12 months, with the downward movement in interest rates expected, when your investment matures, the money can only be reinvested at a lower interest rate. And, every investment which has an interest rate element carries the reinvestment risk.

Gold as an asset class, irrespective of what is happening will continue to be a favourite. With a longer-term horizon in excess of 3-5 years, one can have an allocation between 10-15% of the overall portfolio.

One could also look at silver along with gold in the overall allocation. However, silver ETFs or funds are not in place as of now, but you can always invest through e-silver. Gold and silver as an alternative asset class should also form part of this portfolio , but not exceeding 10-15%. Again, no thumb rules. Itís

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