What Is The Best Portfolio Allocation Strategy For FY23?

Aashish Somaiyaa: I completely agree with Santosh’s points. You should have a mixed large cap, mid cap and small cap. He is right in pointing out this whole Multicap conundrum because they were meant to be large and mid and small. But everybody converted their Multicap into a large-cap fund, and that caused all the confusion.

I do not expect anybody to have that kind of foresight where they will be in small caps at the right time and move to large caps at the right time. You take the BSE 500 as a benchmark and you do what it takes to outperform by stock selection, not by necessarily trying to say that ‘I can forecast which segment of the market will do well’.

If I have to devise a portfolio, I will have three or four components, assuming that I am targeting 12% to 15% and not targeting 6%, 8% or 10%.

Let’s say that I’m somebody who has a risk appetite and wants double-digit returns. I will put 40-50% of the money into a fund which has large, mid and small. I’m not deliberately putting a label. I’ll put it in any Multi or Flexi fund which is a mix of large, mid and small.

I would put another 20-30% into international funds, clearly for an Indian investor. International funds, according to me, are in two buckets. One is investing in emerging markets, which offer something which India does not offer. For example, there are some emerging markets, which are commodity-driven. There are emerging markets like South Korea or Taiwan which are tech-driven. So, emerging markets also offer some diversity. The third is the US You can not make an equity portfolio with the US being absent in it. So, the US is clearly the center of all innovation and where most global businesses of the world are listed in the American stock exchanges.

If I were somebody looking at a 12-15% kind of return, I would ensure that about 70% of my portfolio is in the Multicap India Fund, Global Emerging Markets Fund and the US Equity Fund. You can give or take 5%. Around 30% would be debt.

That 70% and 30% depends on the type of volatility I am experiencing, on whether I am running ahead or behind my return target, and depending on what is happening in the market. I would use that 30% to sometimes allocate when there is an opportunity or take profits when I have made lots of money. So, I would run it like 70:30. 30 is a balancing factor – the need for money, urgency, emergency funds, a pot of money to balance or take advantage of opportunities, etc.

I’m not a big fan of trying to maximize returns on debt. So, for me that 30 would be a three-to-five-year corporate bond kind of portfolio because conceptually, I do not understand high risk debt and do not see why one should try to maximize return in debt. So, I would put it in three-to-five-year corporate bonds with a good rating.

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