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Investors lose Rs 36 lakh crore since Jan; experts say allocate 35-60% portfolio to equities

Moneycontrol, May 13, 2020

Asset allocation centers on diversification of a portfolio among different asset classes such as equities, fixed income, gold, and some cash in hand.

Kshitij Anand @kshanand

Since January 2020, when both Nifty and Sensex both hit a record high, investors have lost Rs 36 lakh crore in the market in terms of market capitalisation on the BSE.

If you are a new investor, following the discipline of asset allocation is all the more important, especially at a time when the economy is unlikely to do well for at least a year, earnings will remain muted for more than 2 quarters thanks to the lockdown, and interest rates are heading lower which also means that your fixed deposits might not give you attractive returns.

So what is Asset Allocation? In simple words, asset allocation centers on diversification of a portfolio among different asset classes such as equities, fixed income, gold, and some cash in hand.

He objective of asset allocation is to minimize risk and maximize returns. Can asset allocation be the same for all age groups of investors? Well, the answer to that would be ‘no’.

The asset allocation strategy would be dependent on your risk profile. For starters, you could do with a small amount but then as portfolio size increases investors are advised to seek professional help.

Try Asset Allocation Calculator on Moneycontrol. This tool will suggest an asset allocation for you across different asset classes based on your level of risk capacity and risk tolerance.

https://www.moneycontrol.com/personal-finance/tools/asset-allocation-calculator.html

Amid the COVID-19 fall which has wiped out more than Rs 30 lakh in terms of market capitalisation on the BSE and most of the bluechip names are down 20-50 percent in the same period suggest that there are plenty of good quality beaten-down stocks which investors could look at.

Before deciding the percentage of the allocation to different financial instruments one should consider the below factors. The investor should have a clear financial goal which will help in deciding either to invest in the growth-oriented or income-oriented class, suggest experts.

Cash flows, or source of cash, as well as the time horizon for both investment as well as to fulfill the financial goal is of utmost importance. Risk appetite will decide the investor’s ability to take the risk and returns associated with the investments

“Asset allocation is a simple strategy to mitigate the risk and to maximize the returns which meet the financial goals of the investors. The investor has a wide range of options to choose between various instruments like equity, debt, gold, cash, and real estate,” Gaurav Garg, Head of Research at CapitalVia Global Research Limited- Investment Advisor told Moneycontrol.

“Let us assume an investor who is at age of 40, the ideal asset allocation would be 60 percent to equity, 20-25 percent to fixed income/gold and 20-15 percent in cash,” he said.

We have collated recommendations from various experts on how should one allocate their capital among various asset classes amid COVID-19 gloom and doom. The portfolios are made assuming the investor is in the age bracket of 30-40 years:

Expert: Hemang Kapasi, Portfolio Manager – Equity Investment Products, Sanctum Wealth Management Private Limited

Assuming investor age is between 30-40 years, its ability to absorb risk would also be higher. We advise higher allocation to equities and lower to other asset classes. There should be at least 65% allocation to equities while investments in fixed income and gold should be 20% and 15% respectively.

Within equities, one should adequately diversify into large caps and mid-caps as large caps provide stability while mid-caps provide an opportunity for higher growth. At the current juncture, our tilt would be more towards large caps in this uncertain environment.

Expert: Vikas Jain, Senior Research Analyst at Reliance Securities

Equities: 50% (Invest over the next 3-4 months)

Fixed Income: 25% (Invest at current levels as better placed compared to other assets)

Gold: 10% (Sharp up move in last one year so risk reward not being in favour)

Cash: 15%. (Use the cash at the appropriate time to increase the existing holdings)

Expert: Nirali Shah, Senior Research Analyst, Samco Securities

In terms of asset allocation with Nifty50 around 9300 levels, investors should allocate 30% to cash, 20% to FDs, 15% to gold, and 35% to quality equities.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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