Book profits in equities, lock into current FD rates

Take some allocation to long-duration debt funds given the likelihood of rate cuts this year

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The start of a new year is a good time to assess and recalibrate T your financial strategy. Here are a few critical steps you need to take to align your portfolio with evolving market conditions and changes in your life circumstances.

Equities

Equity markets have witnessed a sharp run-up over the past year, with the Nifty 50 up 22.6 per cent. This would have made many investors' portfolios overweight on equities. They should move a part of their portfolio from equities to fixed income to bring their asset allocation back to the original level.

Investors also need to rebalance at the sub-category level. Mid- and smallcap indexes have run up more than the large-cap index. While the Nifty Midcap 150 index is up 48.4 per cent, the Nifty Small-cap index is up 54.7 per cent over the past year. Therefore, investors should sell a part of their small- and mid-cap holdings and move the money to the large-cap category.

Purchasing active funds within the large-cap category is not advisable. Says Feroze Azeez, deputy chief executive officer, Anand Rathi Wealth: "This category has the least alpha generation potential. In 2023, 84 per cent of largecap funds beat the Nifty 50, which is less compared to the other diversified equity categories." One may opt for passive funds within this category.

Next, check the style diversity within your equity portfolio. Says Azeez: "The performance of the two styles-growth and value-is usually inversely related." It is prudent to allocate to both styles instead of being influenced by past performance and tilting heavily towards one over the other.