Investments directly into equities or passively via equity mutual funds should be done with a long-term view to get best returns. A long-term view eliminates the risks of timing markets. Large-cap stocks must be the core of the equity portfolio as they are more bankable and will ensure capital preservation. A portion of investments should be put into small-cap and mid-cap stocks with strong fundamentals to help the portfolio get a kick of higher returns.
Those willing to invest in equities should have a long-term horizon to derive maximum benefits, Bhuvanaa Shreeram, Co-Founder & Head of Financial Planning at House of Alpha told ET Markets.
Investors with a longer horizon, say of 10 years, should go for professionally managed equity mutual funds, she said. The equity portfolio should have a balance of largecap, midcap and smallcap funds depending upon where the investors find themselves in the markets, the House of Alpha expert said.
Under the current situation, she remains bullish on the smallcap and midcap funds.
However, largecap funds should remain the mainstay of the portfolio and investors should put 50% of the money in this segment, she added. The remaining 50% can be divided into midcap and smallcap in the ratio of 35% in the former while 15% into the latter, she advised.
She refused to advise in case of certain sectors as usually one can get a call to enter but not a call to exit.
“There is a danger of catching the cycle at the wrong end. One must leave the selection of sectors and themes to fund managers as they have better research capabilities to make informed decisions,” Shreeram said.
While the core portfolio should be equity heavy if one has a long-term view of 10-12 years, people in their 20s and 30s should first buy insurance products to meet the health of financial emergencies, she said.
“Another part is to plan for your future where you can keep a part of your income in an emergency fund. Market linked debentures can be purchased with pre defined payout structure at a predefined date. A market linked debenture has got relatively less risk than an equity mutual fund,” Shreeram said.
Dos & Don’ts
1. Warning against equity investments over a short-term view, Alekh Yadav, Head of Investment Products, Sanctum Wealth, said as an asset class equity is apt for creating wealth over a long term. In the near-term, equity can be volatile and could lead to significant drawdown (decline from peak investment value).
2. His advice to investors is to follow an asset allocation-led approach to building investment portfolios. “An asset allocation approach would mean diversifying across asset classes like equity, debt and alternatives including gold,” Yadav said.
“It all starts by putting some thought into understanding investment goals, risk tolerance, and time horizon first and then building portfolios,” the Sanctum Wealth expert said.
3. Often we find that investors only go after returns and that it is only one side of the coin, Abhishek Dev, Chief Executive Officer and Co-Founder, Epsilon Money Mart said. Having risk in control should be the first step towards a sustainable portfolio building exercise, Dev said.
4. An investment portfolio decision should be a cumulation of risk appetite, time horizon and goal amount, the Epsilon Money Mart expert said.
5. Once you have these in place, one should look at the different asset classes available that match our profile, he said.
6. Regularly monitoring and rebalancing the portfolio is equally important, thus, keeping track of the investments holds the key.
