This week I decided to do an overall audit of my Debt portfolio. The review was necessitated mainly by the changes in the Small Savings Schemes rates which were brought about. However, it is generally a good idea to do an audit in the beginning of a Financial year to see if any changes are required in the current plan.
As many of the regular readers will know, I have 3 portfolios namely Debt, MF and stocks. In my current state of Financial Independence, the debt portfolio plays a very important role. My main objective here is to get enough regular income out of this so that I do not have to depend on my active income through Consulting for my day to day expenses. As I have no real fresh investments planned for the Debt part, the only other objective is capital appreciation. So, if my Debt portfolio shows some appreciation after the withdrawals I make from it I will be happy enough.
In this post, I am not getting into the rationale of my current investments for the portfolio. Interested readers will need to go through my blog to search for the relevant posts. The audit only looks at what I have and what changes I plan to make.
- Tax free bonds are about 12.5 % of my debt portfolio. These are bonds from 2013 and carry a coupon rate of 8.8 %. There is no real need to change this and it remains a good part of my interest income in the years to come.
- PPF forms about 20 % of my debt portfolio. The reduction in rates to 8.1% means that I will now earn significantly less out of this. This will not impact my usage of money as I was not planning to withdraw in the near future. My plan is to keep investing for now and take a call in 2019 when the account reaches the current maturity date.
- FMP schemes form about 45 % of my debt portfolio. The plan was to use the capital gains from here as my regular use and reinvest the principal. I plan to keep doing the same though the reinvestment will not make sense in FMP now.
- Other Debt funds form about 12.5 % of my portfolio and the issues here are similar to FMP, as outlined above.
- POMIS and some FD form the last 10 % of the portfolio and this will be unchanged.
The good thing is my income from Debt portfolio would not have been compromised a great deal. While PPF interest will be lower, FMP and POMIS rates are pretty much locked in and will therefore not reduce in any significant manner. Going forward, the real issue I will have to decide on is how do I redeploy my principal amount redeemed through the FMP maturity. The options I have thought of are Ultra short term funds, Balanced MF, Arbitrage funds and Equity Savings Funds. Each of these have their pros and cons and I need to look at what strategy will involve the minimum risk.
Of course, with the rates likely to decline further over the next couple of years, somer other strategies will probably be needed in my next annual review.