Prableen Bajpai: Whenever we seek to build a corpus – five years being the time factor – what is important are the return expectations of the selected products and the risk appetite of the investor. Someone may be comfortable with a 6-7% return; someone else may be a high risk taker and willing to take an all-equity exposure. Basically, it would depend on the investor’s risk appetite and comfort level. Based on this, we can create a wallet.
If someone is looking at a low-risk type of portfolio, or returns of around 6-7%, that would basically be an all-debt portfolio for that person. Such a wallet would actually require a huge sum, in terms of lump sum, around Rs 70 lakh nowadays, or around Rs 1.4 lakh as a SIP.
As you go up, in terms of your increased risk appetite, the demand in terms of what to invest starts to fall, as you take on higher risk and your expected returns increase.
Basically, here are the categories that can be combined and used in some permutation by investors depending on the appropriate risk appetite. One is the debt basket and there I have three funds, all of which are index and passive strategies in the debt segment. Now is a good time to get exposure to some sort of five-year debt index fund.
We are in March. So, it covers about six exercises, and the benefits of indexing would be higher. There is no credit risk in any of these cases, but there would be interest rate risk. These three funds all have a target maturity, meaning if you hold them, whatever yield they come in today, they get – it hovers around 6.2 to 6.5 %. Thus, these three funds are the IDFC Gilt Fund, the Axis Crisil fund which invests in government loans, and the third is the Edelweiss PSU Bond SDL Index Fund.
The second category is globally hybrid. The hybrid gives you a combination of debt and equity. I chose the Conservative Hybrid category for someone who is only looking for low equity exposure, as it can go up from 10% to around 25% in equities. The two funds I like are Kotak and Parag Parikh.
One of the popular categories with a duration of around five years is the Balanced Advantage Fund category as well as the Hybrid Aggressive category. From there, a fund from Edelweiss and Mirae is what investors can look at.
These are not unconditional recommendations. These are just suggestions that investors can look into that can give them decent returns.
Edelweiss, during the March 2020 decline, fell only 13%, while funds in the category fell around 32%. Even Mirae Asset has given no negative returns on a rolling five-year basis.
Let’s say someone puts some of their funds in debt, maybe something in a hybrid or conservative debt space, and wants pure equity exposure. Some of the funds I would suggest are index funds – the large cap index – this can be done by a market weighted index, the regular Nifty 50 skews an equally weighted strategy like DSP. I suggest the DSP because it is the oldest fund we have have in space Nifty equal. Two active funds here are the Axis Flexi Cap and the Parag Parikh Flexi Cap. Again, these two funds have shown consistent performance in terms of rolling yield.
International allocation is always a good argument and now is a good time to gain some international exposure – perhaps around 10% to 15% – depending on the investor’s risk appetite for investing in global equities. . Options here can be the Kotak Nasdaq 100 or the Aditya Birla Nasdaq 100.
A combination of these funds (can be looked at) and based on this one can calculate the returns.
If someone invests 20% in pure debt, 30% in a conservative fund, and 50% in an equity fund, with the range of returns I’ve taken, they can get a portfolio return of close to 10% with little high risk.