Insider: Step 3 – Portfolios

So, you now know your risk profile and you have considered making investments in fixed income as well as equity basis an asset allocation that matches the time horizon.

If yes, you have covered the math part of it.

Strangely, investments don’t run by math alone. There is a complex mix of emotions that drive our decisions and actions.

It is important to understand that side as well.

The portfolios on Unovest cater to the three risk profiles as also to the investment time horizon.

Here’s what you should expect from a typical portfolio for a particular risk profile and time horizon or rather, what it should expect from you.

You may want to read it more than once.

Note: Drawdown refers to the drop in portfolio value, sometimes temporary, other times permanent. In recent times, mid and small cap funds have pushed back almost a year in their worth. That’s a drawdown.

In case of debt funds, a medium or long term debt fund, based on interest rate changes, can push back 3 to 4 years worth of gains.

Unfortunately, in recent times, even liquid and short funds faced almost a year’s worth of drawdown. In March 2020, due to liquidity pressures and lack of market making activity, there was a temporary spike in yields and hence drop in value of the safer debt funds. Some even turned negative, albeit temporarily.

If you want to reconsider your portfolio and your asset allocation, feel free to.

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So, you have got your risk profile, asset allocation breakup for equity, fixed income and you know your time horizon too.

Now, how about creating you own mutual fund portfolio. Use the Fund Shortlist to pick your mutual funds, aligned to your risk profile and see what you can come up with. To access the funds shortlist, click here.

Not sure? Sounds like work to you?

No problem! Let me share with you ready mutual fund portfolios which you can use to preserve, build or multiply your wealth.

Each of the portfolios can be used strategically, based on the time horizon available as well as tactically, based on the state of the markets (cheap or expensive. )

Let’s take a quick overview. (Updated as on Oct 2020)

#1 Wealth Preserver – for less than 3 years

The primary purpose of this portfolio is to preserve your capital because there is an immediate end use coming. With a combination of liquid, ultra short and short term funds, these funds should result in some fixed income while they preserve your capital.  

If you have any other fixed income investments such as Bank FDs or any alternatives, that should be fine too. Focus on capital preservation. 

Here’s the portfolio (name of the scheme – allocation):

1. Quantum Liquid Fund – 25%
2. Parag Parikh Liquid Fund – 25%
3. SBI Magnum Ultra Short Fund – 25% (only if you need money after 1 year)
4. HDFC Short Term Debt Fund – 25% (only if you need money after a couple of years)

#2 Wealth Builder – for 3 years plus

It is highly likely that is the portfolio suitable for you. Whatever your risk profile, this portfolio should see you through a variety of market conditions between not cheap and very expensive.

With a presence of two dynamic funds (which auto allocate to equity based on how attractive they are), along with an international fund for diversification and a short term debt fund to give more cushion against any major market downturn, you have a solid portfolio to build wealth long term.

Here’s the portfolio (name of the scheme – allocation):

1. Parag Parikh Long Term Equity Fund – 30%
2. Edelweiss Balanced Advantage Fund – 20% (allocation doubled)
3. DSP Dynamic Allocation Fund – 20%
4. Motilal Oswal S&P 500 Index Fund – 10% (Alternatives are same AMCs Nasdaq 100 & Franklin India Feeder US Opportunities – Fund of Fund; allocation reduced to half)
5. HDFC Short Term Debt Fund – 20% (or any of the funds in the shortlist, you can go with a safe liquid fund too)

This portfolio will not give you outsized returns but it will also prevent any big drawdowns which can affect you heart rate. 

#3 Wealth Enhancer – for 7 years plus

Ideally, this potfolio should be attempted only and only when markets see a rout so much that the chances of loss of capital go to near zero (peak fear). To put it in perspective, today is not that time. Alternatively, if you have a 20 year time horizon, you can still take this.

A combination of mid cap funds with a larger allocation, international, a multi cap and a dynamic fund, this can take you on a rollercoaster ride. It will extract its cost from you before taking you to your final destination.    

Here’s the portfolio (name of the scheme – allocation):

1. Parag Parikh Long Term Equity Fund – 30%
2. Motilal Oswal S&P 500 Index Fund – 10% (Alternatives are same AMCs Nasdaq 100 & Franklin India Feeder US Opportunities – Fund of Fund; allocated reduced to half)
3. Sundaram Midcap Fund – 20%
4. DSP Midcap Fund – 20%
5. Quantum Dynamic Bond Fund – 20% (You can use more than 1 debt fund within the allocation;)

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Other Notes:

• A brief reasoning on the inclusion of any fund is included in the MF shortlist document.
• These portfolios do not know your other investments (equity or fixed income) and hence should be used as a part of your overall portfolio.
• You can tweak the portfolios to make them your own. Replace one fund in the portfolio with another fund from the shortlist, though in the same category.
• Dedicated small caps funds are not part of any portfolio, most investors show maturity at the time of entering and willingness to handle pain but when they fall, they first thought is to exit. Small caps should be included only under advisement. Just that you know, mid cap funds have about 30% to 35% allocation to small caps too.
• If you have any question about any of the portfolios or funds, email me at vipin@unovest.co