Financial planning plays a vital role in everyone’s life. What should be an ideal mix of equity or equity oriented mutual funds, fixed income assets, insurance, gold and cash for various age groups? Please throw some light on it.
Financial planning is pivotal for wealth creation and demand continuous and planned investments with right allocation of assets. It works as an investment strategy that balances the risks by spreading assets across various categories like real estate, stocks, gold, fixed deposits and many more.
The mix of different asset classes in one’s portfolio would depend on many factors. For instance, the time horizon for investment. Investing in equities won’t be prudent if money is needed in a few months, but not investing in equities will be equally imprudent if investing for a long-term goal like retirement. A single asset class mix will not work well for all investors. The same asset allocation will not work well for all life stages of an investor.
Alpha generation is considered to be a very tricky or tedious task in the financial world. What are key strategies or principles you follow to generate alpha for your clients?
We are equipped with multiple tools and expertise through which we try to generate alpha. Using derivatives to hedge portfolios at relevant times, superior stock/scheme selection, including index funds in client portfolios to lower portfolio costs, advising exposure to quality early stage startups as part of satellite portfolio of clients are some of the ways in which we try to generate alpha over long periods of time for clients.
How does an individual or retail investor generate alpha for themselves? As the current equity markets are highly volatile and unstable, do you see any opportunities for alpha generation? How should one hunt for them?
The most controllable factor to generate alpha is investor behaviour as alpha generator works as a security for an investor that generates excess returns than the anticipated benchmark with minimal risks. To be able to stay disciplined and keep investing regularly without trying to time the market is the most important alpha generator. There are enough statistics out there that say average investor returns are lower than that of returns generated by mutual funds in which the investor had put in money. This depicts the behavioural impact of trying to time the market by redeeming during market crashes or not investing regularly.
The return on fixed assets has begun to increase lately. With a buzz of rate hikes in future, it is expected to improve further. Do you think one should increase the allocation in debt or fixed income assets as of now? What is your take on it?
Certain maturities in the fixed income yield curve are attractive on a risk-reward basis at this point in time. Exposure to 4-5 years of government securities offers good value. Longer duration bond funds can also be considered for tactical investments.
Despite the rising inflation, gold has remained an underperformer for quite some time. Do you see bullion improving? Do you think that investors should consider it amid the fragile and feeble macroeconomic scenario at the global level?
We have been witnessing a long stagnation in the prices of gold and it is anticlimactic to see how it has turned out to be an underperformer throughout the ongoing decade. Furthermore, in the last year, the return on gold was actually negative. The deluge of liquidity due to unprecedented money printing and accommodative monetary policy has diluted the traditional logics of economics. Having gold/silver as a diversification tool may not be effective in this new normal in financial markets.
What is your take on cryptocurrencies? Do you suggest your clients invest in crypto assets or they are a ‘touch-me-not’ asset for you? Also, if the regulations are placed in the future, will you be interested in these assets?
Ans: As of now, cryptos are not a regulated product as per RBI and SEBI regulations. Being SEBI regulated entities, we do not advise on anything that is not officially allowed to be invested into. Even otherwise, we would not recommend an asset class that is as volatile as cryptos as part of the core portfolio for our clients.