Where to find the cash :: Business Line

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Buy stocks; Invest in bank deposits; Add tax-free bonds; Don't forget gold.

But where is the cash for all this?

Good question, but the market mayhem of 2011 has created such a unique set of opportunities across assets that it would be a pity to let them go waste.

Here are a few suggestions that can help you free up cash for those investments.

REVIEW AND RE-BALANCE

To take advantage of the opportunities outlined in the accompanying article, you need not necessarily raise fresh money. You can, instead, re-balance your existing portfolio to an ideal asset allocation.

If you own a portfolio of long-term investments, you should ideally be following a fixed asset allocation strategy. That is, deciding on a preferred mix of debt, equity and gold in your portfolio and staying with it, irrespective of how markets move.

Suppose you started out with Rs 100 shared 40:50:10 between equity, debt and gold at the beginning of the year.

Take stock of the market value of your current investments and work out allocations to each asset. You may find that your portfolio is now worth Rs 97.5, (a 2.5 per cent loss) with the equity portion trimmed to Rs 30 (roughly 31 per cent of the total now), debt growing to Rs 54.5 (56 per cent) and gold to Rs 13 (roughly 13 per cent).

This is assuming your stock portfolio lost 25 per cent in value, while debt earned 9 per cent and gold 30 per cent, in line with the actual performance of these assets.

To reset your asset allocation and get back to your preferred mix, you need to top up on equities and partly cash out of debt and gold holdings. Liquidating your debt and gold at a profit will give you the cash necessary to buy the equity funds we recommend.

SWITCH WITHIN ASSETS

You can also switch between products within an asset. In equities, if you hold several mid- and small-cap stocks, you can opt for an equity fund focussed on such stocks instead (IDFC Premier Equity, HDFC Midcap Opportunities, Goldman Sachs Nifty Junior Exchange traded fund).

If you want to invest directly in stocks but reduce risk, replace the mid- and small-cap picks with blue-chips.

In debt, consider pre-closing bank deposits you opened a year ago and opening a new one. The higher interest rates may more than make up for the pre-closure penalty. You can also switch proceeds to tax-free bonds, provided you can lock in the money. In every asset class, switch out of dud products (that didn't beat their benchmark or inflation) and buy ones that have fared better.

Finally, you could raise fresh cash by using up idle savings account balances and curtailing spending in favour of saving — the new Honda Brio or LCD television you planned to buy for New Year will still be around a few months later. The same cannot be said of tax-free NHAI bonds, bank deposits that offer 10 per cent, or stocks at bargain-basement prices.