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Beginning to invest for a long term goal in accordance with a plan is an important first step. Once the investing process is underway,

  • performance of the instruments chosen have to be monitored
  • the portfolio rebalanced
  • the goal plan re-evaluated annually and
  • a few years away from the goal-date a plan to shift funds from risky instruments to risk-free instruments should be in place.

Among these steps portfolio rebalancing is a concept not well understood by many. Let us first try to answer, why a long term investment portfolio should be monitored? This will naturally lead us to the idea of rebalancing. We will then look at the types of rebalancing and which among them is optimal.

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A recurring deposit (RD) is a terrific instrument for meeting important short-term goals. If I can claim to have some financial discipline it is because I observed my parents open RDs for meeting their short term goals ranging from paying insurance premium to my school fee. For the new generation of investors I guess the RD could be introduced  as a SIP in a debt fund with a predetermined rate of return!

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24

Use this excel file to track returns from your SIP and lump sum mutual fund holdings. I have had several requests for making something like this. Didn't do much about it until Mr. Vijay Hegde sent me his tracker file for inputs. I got inspired by it and decided to build one from the ground up with no resemblance to existing trackers.

UPDATE: March 2014: Automated Mutual Fund and Financial Goal Tracker is now available for download.

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10

Use this suite of calculators to compute SIP and lump sum returns, compute SIP corpus and determine SIP amount needed for a goal. This represents an upgrade of my understanding of (a) excel functions and (b) the compounding process. The calculators also help illustrate a common error in converting monthly  returns to annual returns.

First some yada yada  (to borrow a phrase fromGoogle toolbar) if you don't mind. Every since the blog got reasonably popular (for my standards) kind readers have called me a 'Excel expert' much to my embarrassment. Nothing is farther from the truth. The truth is  I use Excel because it is the only platform accessible to everyone. These calculators can be written in many platforms routinely used for physics research with much better efficiency. Truth is I am still unfamiliar with many Excel functions. I manage because, thanks to my training, I have realized that all of investment and amortization math stems from a single master equation. All one needs is high school algebra to manipulate the master equation to different situations. The Excel functions like FV, PV, IPMT etc. do just this.

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