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Guide for a well-balanced portfolio structure for retail investors

12:36 PM Nov 29, 2021 | Ajinkya Kulkarni

Indians have always been keen on savings, but with the rising inflation and declining returns due to low interest rates in the market people have started taking their financial well-being more seriously. The multiple waves of pandemic led to people losing their jobs and incurring unexpected health expenses which made people realise the importance of a well-balanced portfolio- short and long term.

According to SEBI, Demat account additions rose to an all-time high of 10.7 million between April 2020 and January. This is an increase of more than double the new accounts opened in FY20 at 4.7 million. Around 4 million new accounts were added, each, in FY19 and FY18.

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According to BCG, financial wealth in India grew 11 percent to $3.4 trillion in 2020 despite the coronavirus pandemic. Now, these are heavy numbers, but how can you start building wealth for yourself as an individual?

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First and foremost, forget about the stocks, it looks fascinating, but an excellent way to get into stocks is after you have “THE”:-

T- Term Insurance, H- Health Insurance and E- Emergency Fund.

THE framework is to get your basics right and then moving on to making investments. This is extremely crucial in case of an emergency or any unusual circumstances. Ideally, this is for anyone who has started earning a steady income. After this, start looking at investments:

After the insurance(s) and emergency fund are in place, one can plan their subsequent investments as per the financial goals. Even without a concrete financial goal, investing makes sense because money left idle in the bank is value destructive after adjusting for inflation. This is because the savings interest rate provided by the bank is less than the average rate of inflation in India.

Therefore, investing will enable an investor not only to preserve capital but also in capital appreciation.

It is advisable to invest 40-50 percent (as per the investor’s risk appetite) of one’s portfolio in equities. The investment within the equity category can be in Mutual Funds, Stocks, ETFs, Smallcase, etc.

If you’re just starting, it is better to buy index funds or ETFs as you can diversify across different sectors and have lower expense ratios.

Next, 20-30 percent of the portfolio can be invested in debt instruments through PPF, Government Securities, Covered Bonds (Wint Wealth provides this), among others. Further, about 5-10 percent of the portfolio can be invested in riskier assets such as Cryptocurrencies (as per the investor’s risk appetite).

Last, but not least, it is prudent to keep about 10-20 percent of the funds in liquid instruments such as liquid funds to invest when any suitable market opportunity is available.

(Ajinkya Kulkarni is Co-founder of Wint Wealth)

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