X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2019 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
A Portfolio Strategy That Could Help You Reduce Shocks Of The Equity Market - Outside View by PersonalFN

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

A Portfolio Strategy That Could Help You Reduce Shocks Of The Equity Market
Oct 9, 2018

Nothing is going right for the bulls on Dalal Street.

The world economy has encountered massive roadblocks in the form of geopolitical tensions and trade war threats, causing growth retardation.

Like other emerging market currencies, the increase in US dollar value and rising interest rates in the US are creating problems for India as well.

Recently, the Indian Rupee, which is grossly overvalued, has sunk in comparison to the movement of other emerging-market currencies against the greenback.

It's been a double whammy for Indian investors.

Foreign Institutional Investors (FIIs) have been shunning India as if its growth story has ended abruptly.

Rajasthan and Madhya Pradesh are going into elections shortly. The Lok Sabha elections are due in May 2019. And in the political milieu, the uncertainty is making markets jittery.

So far, domestic retail investors have shown stable reliance and have been investing religiously in equity markets through mutual fund vide SIPs (Systematic Investment Plans).

But the incremental flows have started petering out now.

--- Advertisement ---
LAST Few Hours Left: Pay Just Rs 99 To Get…

We're just a few hours away from closing one of our best offers.

An offer to get 30-Day unrestricted access to Smart Money Secrets (Normally worth Rs 6,000 per annum) for Just Rs 99.

PLUS, INSTANT Access to detailed reports on 15 Guru-Based stocks we have already recommended in the past (13 of these are still within their Buy Limits)…

PLUS, there a lot more.

So, if you're reading this before 11:59 PM, tonight…

Don't wait for another minute!

Click here for full details…
------------------------------

In January 2018, nobody expected the leading indices, the S&P BSE Sensex and CNX Nifty, to fall more than 10% in just two months. And, in March, hardly anybody would have anticipated that in coming months the markets would scale new highs in the coming months.

Again, we are witnessing the market turbulence.

Indian markets are giving investors a roller-coaster ride.

Are you apprehensive of abrupt market movements?

Ideally, you shouldn't.

In fact, market volatility can prove to be advantageous for you. Simply because that helps you accumulate more number of units.

Those bamboozled by the market volatility repent when markets regain the lost ground and continue to march northward.

What should be your strategy to beat market volatility?

'Core and Satellite strategy' is the answer.

The 'Core and satellite' investing is a time-tested strategy to build your investment portfolio. For the mutual fund investors, the 'core portfolio' should consist of large-cap, multi-cap, and value funds, and the 'satellite portfolio' should include mid-and-small cap funds and opportunities style funds.

Why follow the Core and Satellite approach?

  • To attain optimal portfolio diversification
  • To offer greater stability to the portfolio and avoid unnecessary churning
  • To benefit from the dual investment strategy
  • To create wealth and curb the downside risk to the portfolio substantially

PersonalFN's research believes core holdings should form 60% of your mutual fund portfolio and the rest 40% shall consist of satellite holdings.

Weightage of each portfolio constituent in both 'Core' and 'Satellite' categories can make a huge difference in the end. Unless you monitor your holdings and recalibrate your strategy to suit the changing market conditions, especially for the 'Satellite' part of the portfolio, you may fail to derive the real benefits of the 'Core and Satellite' approach.

Remember...

While the 'Core' part of your portfolio focuses on the stable schemes with a long-term view and the 'Satellite' part revolves around capitalising on short-term opportunities, the combination helps you generate superior returns without taking excessive risks.

Rules for creating a strategic portfolio

  • The selected funds should be amongst the top scorers in their respective categories. The portfolio should be built with a time horizon of at least five years.
  • It should be diversified across investment style and fund management.
  • Each fund should be true to its investment style and mandate.
  • They should be managed by experienced and competent fund managers and belong to fund houses that have well-defined investment systems and processes in place.
  • Each fund should have seen at least three market cycles of outperformance.
  • The portfolio should contain an adequate number of schemes in the right proportion. In short, it should carry the most optimum allocation to each scheme and investment style.
  • The number of schemes should not exceed 6-7 in your portfolio.
  • Not more than five schemes should be managed by the same fund manager.

You can further enhance the effectiveness of the 'core and satellite' strategy by starting a SIP (Systematic Investment Plan) in each shortlisted scheme.

Further, do the following:

  • Describe your financial goals
  • Place a time limit to achieve financial goals
  • Find out the amount you would need in future to fulfil them
  • Create a personalised asset allocation plan
  • Take into account your risk appetite
  • Invest as per your asset allocation plan

At present, many mid and small-cap stocks have fallen in the range of 40%-70%. The Net Asset Values (NAVs) of many mutual fund schemes are also down over 20%.

Although the overall market valuations may still look expensive and FIIs might appear to be wary of Indian equities, fall in many mid and small-cap stocks has made valuations attractive.

Managers of worthy mutual fund schemes take advantage of such attractive buying opportunities. Process driven mutual fund houses and experienced fund managers, in fact, await market corrections like the prevailing ones.

[Read: Do You Fear The Decline In Mid Cap Funds? Don't, If You Invest The Right Way!]

Large-cap funds and the value funds would also benefit from the present market conditions. Although the problems of IL&FS debt are deep-rooted, the subsequent fall in the financial stocks might have to offer lucrative buying opportunities to fund managers of process-driven fund houses.

[Read: How IL&FS Rating Downgrade Will Impact Your Mutual Funds... ]

The verdict

'Core and Satellite' strategy helps us tackle the present market volatility. However, investing in mutual fund schemes that have a proven track record and from the process-driven fund houses is imperative.

Editor's note:

PersonalFN offers you a great opportunity if you're looking for "high investment gains at relatively moderate risk".

Based on the 'core and satellite' approach to investing, here's PersonalFN's premium report: The Strategic Funds Portfolio For 2025 (2018 Edition).

In this report, PersonalFN will provide you with a ready-made portfolio of its top equity mutual funds schemes for 2025 that have the ability to generate lucrative returns over the long term.

PersonalFN's "The Strategic Funds Portfolio for 2025" is geared to potentially multiply your wealth in the years to come. Subscribe now!

Happy Investing!

PersonalFN Content & Research Team

This article first appeared on PersonalFN here.

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.

Disclaimer:

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

Equitymaster requests your view! Post a comment on "A Portfolio Strategy That Could Help You Reduce Shocks Of The Equity Market". Click here!

  

More Views on News

Election Series: Why 'Liquor' is so Important to the Elections (The 5 Minute Wrapup)

Apr 19, 2019

When elections come around, liquor flows like water and everyone gets drunk with power...what does this mean for liquor stocks? Read one to find out from our very own election trading analyst, Vijay Bhambwani.

What Led To Gush Of Inflows In Equity Mutual Funds In March 2019 (Outside View)

Apr 18, 2019

As compared to net inflows of Rs 3,948 crore in the equity category during February 2019, the inflows for March 2019 were strong at Rs 9,014 crore.

Election Series: The One Segment That Is a Must-Watch Post Elections (Profit Hunter)

Apr 18, 2019

When goods are handed out by benevolent politicians during election, aspirational goods such as two wheelers often end up winners, says our very own trading analyst, Vijay Bhambwani.

Key Reasons To Start Tax Planning Early This Financial Year (Outside View)

Apr 17, 2019

If you engage in Tax planning from the beginning of the year you will not do ad hoc investments.

Election Series: Follow the World's Biggest Traders To See Where the Money Flows (The 5 Minute Wrapup)

Apr 17, 2019

20% of all the traders bring in 80% of the money. Watch these 20% and you get a working idea of which way the wind is blowing.

More Views on News

Most Popular

Stocks that Could Be Out of Reach Post Elections(The 5 Minute Wrapup)

Apr 9, 2019

It's a matter of time before the stocks catch the fancy of the markets and big investors.

3 Indian Stocks with Amazon-Like Potential(Profit Hunter)

Apr 10, 2019

We have identified 3 stocks with huge wealth building potential which meet our 'Click of a Button' criteria.

This Company is Making a Big Comeback and You Can Now Profit from Its Example(The 5 Minute Wrapup)

Apr 10, 2019

How Dell got its mojo back.

This is Why the Stock of Jubilant FoodWorks Went Up 1,160%(The 5 Minute Wrapup)

Apr 12, 2019

This critical business strategy has enabled companies to scale their operations faster.

Pocketing Massive Gains with HDFC And HDFC Bank(Profit Hunter)

Apr 12, 2019

Here's how one could have generated gains of Rs 59,250 in 10 days by trading HDFC and HDFC Bank with a capital of Rs 4 lakh.

More

Get the Indian Stock Market's
Most Profitable Ideas

How To Beat Sensex Guide 2019
Get our special report, How to Beat Sensex Nearly 3X Now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE SENSEX


Apr 18, 2019 (Close)

MARKET STATS