Over the last few days, there has been a growing consensus on the fact that asset classes are set for a free fall. While equity has been showing intermittent strengths at lower levels, it has been more on account of trading support than investment buying with long-term investors preferring cash or debt. In fact, in the last few months, the fund flow from the high net worth individual community to debt has been on the rise and besides bank deposits, income funds and gold have been the preferred bets.
In such a scenario, investors have to rely on a de-risking model to build a portfolio and reliance on a single instrument or option may not provide the comfort. Investors who prefer mutual funds can look at a combination of products to minimise risk. While the percentage of allocation for each scheme differs based on individual risk-taking ability and tenure of the investment, these options can be considered by a larger segment as portfolio components.
Here are some of those options:
Debt allocation :
This has been the preferred option in recent times due to the economic environment. While fixed deposit is a product with assured returns, mutual funds (MFs) don't offer the comfort of assured returns. However, MFs have a wide range of products ranging from income funds, liquid funds to ultra short-term bond funds for investors looking for a debt option. As they are more tax-efficient and also offer the flexibility of partial withdrawal, these products can be your option besides fixed deposits.
Allocate around 50 per cent of your corpus towards these in the current market environment, while your short-term fund needs should be completely in debt.
Balance with risk :
An ideal MF portfolio should reflect the risk-taking abilities of the investor and should have a mix of debt, equity, gold and other options that come up from time to time. For instance, the real estate portfolio management service (PMS) or equity PMS are some options that have been launched by mutual fund companies in recent times. As a result, investors should be aware of the changing market needs and should also have the liquidity to take advantage of such opportunities. For instance, while everyone expects the equity markets to test new or October lows in 2009, a smart investor would brace himself for such an event by building his liquid portfolio.
The management of risk is a key component of an ideal portfolio and that could be achieved through a single product or a combination of products, the latter is a better option though. For instance, balanced funds do take care of risk management but to a limited extent and would be an option for small sums. A senior citizen can allocate his corpus between fixed return products and balanced funds for his postretirement fund needs in the early stages of his retirement life. For him, such a combination can fulfil the needs of balancing with a couple of products. It may not be the case for a young investor who has different fund needs with different tenures.
Finally, portfolio creation is a long-term exercise and with respect to equity portfolio, the task extends over a longer period of time. In the case of equity, the approach has to be long-term and has to be a continuous process. For MF investors, there are plenty of products for such an exercise in the form of systematic investment plans (SIPs) and systematic transfer plans (STPs), and such investments can be through a combination of products across sectors.
In such a scenario, investors have to rely on a de-risking model to build a portfolio and reliance on a single instrument or option may not provide the comfort. Investors who prefer mutual funds can look at a combination of products to minimise risk. While the percentage of allocation for each scheme differs based on individual risk-taking ability and tenure of the investment, these options can be considered by a larger segment as portfolio components.
Here are some of those options:
Debt allocation :
This has been the preferred option in recent times due to the economic environment. While fixed deposit is a product with assured returns, mutual funds (MFs) don't offer the comfort of assured returns. However, MFs have a wide range of products ranging from income funds, liquid funds to ultra short-term bond funds for investors looking for a debt option. As they are more tax-efficient and also offer the flexibility of partial withdrawal, these products can be your option besides fixed deposits.
Allocate around 50 per cent of your corpus towards these in the current market environment, while your short-term fund needs should be completely in debt.
Balance with risk :
An ideal MF portfolio should reflect the risk-taking abilities of the investor and should have a mix of debt, equity, gold and other options that come up from time to time. For instance, the real estate portfolio management service (PMS) or equity PMS are some options that have been launched by mutual fund companies in recent times. As a result, investors should be aware of the changing market needs and should also have the liquidity to take advantage of such opportunities. For instance, while everyone expects the equity markets to test new or October lows in 2009, a smart investor would brace himself for such an event by building his liquid portfolio.
The management of risk is a key component of an ideal portfolio and that could be achieved through a single product or a combination of products, the latter is a better option though. For instance, balanced funds do take care of risk management but to a limited extent and would be an option for small sums. A senior citizen can allocate his corpus between fixed return products and balanced funds for his postretirement fund needs in the early stages of his retirement life. For him, such a combination can fulfil the needs of balancing with a couple of products. It may not be the case for a young investor who has different fund needs with different tenures.
Finally, portfolio creation is a long-term exercise and with respect to equity portfolio, the task extends over a longer period of time. In the case of equity, the approach has to be long-term and has to be a continuous process. For MF investors, there are plenty of products for such an exercise in the form of systematic investment plans (SIPs) and systematic transfer plans (STPs), and such investments can be through a combination of products across sectors.
