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Why You Must Review Mid-Year Finances

By Bindisha Sarang
Last updated on: July 09, 2024 12:15 IST
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'A mid-year review makes the end-of-year financial review manageable and less stressful.'

Illustration: Uttam Ghosh/

With the equity markets surging, most major categories of equity funds have given high double-digit returns year-to-date.

While an annual review is usually sufficient, a mid-year review becomes advisable especially in the years when one asset class has far outpaced others.

Besides investments, several other aspects of one's finances should also be reviewed.

"Your money life is very different today than when you started in January. A mid-year review makes the end-of-year financial review manageable and less stressful," says M Barve, founder, MB Wealth Financial Solutions.

Rebalance investment portfolio

Rebalancing becomes essential when your asset allocation--that is, weight of equity, debt and gold--strays from its original strategic level.

"Equity has performed exceptionally well, so its allocation would have increased in many portfolios," says Jigar Patel, member of the Association of Registered Investment Advisers.

Take an example. Suppose that at the start of the year, an investor had 70 per cent allocation to equity, 20 per cent to debt, and 10 per cent to gold.

Small deviations can be ignored. However, if the equity allocation has gone above 75 per cent, it would be prudent to rebalance. Failing to do so would increase portfolio risk.

Investors must also examine their sub-asset allocation (allocation to large, mid and smallcap funds).

"Mid and small caps look expensive. They are at 25-30 per cent above average valuations. This is a prime area for rebalancing," says Tarun Birani, founder and CEO, TBNG Capital Advisors.

Investors should also check if they have become overexposed to certain themes and sectors.

"While sectors like infrastructure and PSUs (public sector units) have performed phenomenally, others like private banks and information technology have lagged. Rebalancing can address these disparities," says Birani.

Rebalancing can be done either by selling the outperforming asset (and sub-asset) class or by buying more of the underperforming asset class.

Investors who rebalance by selling face costs, such as taxes and exit load. Hence, this route should only be adopted to address extreme portfolio dislocations.

Investors can also bring their asset allocation back to its original level by directing new investments towards the underperforming asset class.

On reducing cost of rebalancing, Patel says: "For mutual funds, redeem after the exit load period has ended."

"For direct equity investments, try to divide the selling among various family members to benefit from the Rs 1 lakh exemption per person from long-term capital gains," says Patel.

Replenish emergency corpus

Most people function in firefighting mode, using current investments to fund emergency expenses.

"Have three to six months of expenses saved, including fixed costs like rent and utility bills," says Jinal Mehta, certified financial planner and founder of Beyond Learning Finance.

If rebuilding the emergency fund feels overwhelming, make a small start.

"Consistent monthly contributions will gradually strengthen your financial safety net," says Birani.

Keep your emergency corpus spread across bank savings accounts, fixed deposits, and in liquid mutual funds.

Are you adequately protected?

Begin by assessing your life coverage. Check if your liabilities and responsibilities have changed.

"If you plan to get married or start a family, increase your insurance coverage," says Naval Goel, CEO, PolicyX.

If you have taken out a loan to purchase a house or an education loan for your child's studies abroad, you need to buy additional term coverage.

Similarly, if your parents have retired and now depend on you, consider increasing your life cover.

Changed circumstances may also require some people to update the beneficiaries in their policies.

Some people may need to reduce their term cover or discard it.

If your children are married and are financially stable, you have sufficient savings for your spouse's and your retirement, or your income has ceased, you may give up your term cover.

In the case of health insurance, check whether your cover is adequate.

"Keep a tab on medical costs and adjust your insurance coverage accordingly," says Goel.

Policies offering expanded coverages -- for OPD (outpatient department), robotic surgery, etc -- and discounts for health-related activities are available. Port to them if your policy does not offer these features.

Check loan statements, credit report

Review your loan statements at least twice a year.

"Also check if you have the best interest rate available. Cross-check payments and other details using your latest credit report to ensure everything tallies," says Adhil Shetty, CEO, Bankbazaar.

If you find discrepancies, reach out to the lender and the credit bureau and get them to take corrective action.

Review your budget

Look out for patterns of overspending.

"A semi-annual evaluation can help cut unnecessary spending, lower debt, and increase savings and investments. People tend to overspend if they do not plan their expenditures," says Mehta.

Maintain at least two bank accounts.

"One should be for managing income and everyday expenses and the other for investments. At month-end, compare the first bank's statement with your budget to eliminate unnecessary expenses," says Birani.

Do tax planning

Individual taxpayers need to make the first advance tax payment in June. It is high time you began planning tax-related investments.

"Those under the old tax regime must budget for investments or spending under sections 80C, 80D, 24B, and so on," says Mehta.

Disclaimer: This article is meant for information purposes only. This article and information do not constitute a distribution, an endorsement, an investment advice, an offer to buy or sell or the solicitation of an offer to buy or sell any securities/schemes or any other financial products/investment products mentioned in this article to influence the opinion or behaviour of the investors/recipients.

Any use of the information/any investment and investment related decisions of the investors/recipients are at their sole discretion and risk. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Opinions expressed herein are subject to change without notice.

Feature Presentation: Ashish Narsale/

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Bindisha Sarang
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