What is the best portfolio allocation strategy for FY23?

Aashish Somaiyaa: I completely agree with Santosh’s points. You should have a mixed large cap, mid cap and small cap. He’s right to point out this whole Multicap conundrum because they were supposed to be large, medium, and small. But everyone converted their Multicap to a large-cap fund, and that caused all the confusion.

I don’t expect anyone to have that kind of foresight where they’ll be in small caps at the right time and move into large caps at the right time. You take the BSE 500 as a benchmark and you do what it takes to outperform by picking stocks, not necessarily trying to say “I can predict which segment of the market will do well”.

If I’m going to design a portfolio, I’ll have three or four components, assuming I’m aiming for 12% to 15% and not 6%, 8%, or 10%.

Let’s say I’m someone who has a risk appetite and wants double digit returns. I will put 40 to 50% of the money in a fund that has large, medium and small. I deliberately do not put a label. I will put it in any Multi or Flexi fund which is a mix of large, medium and small.

I would put another 20 to 30% in international funds, clearly for an Indian investor. The international funds, in my view, are in two buckets. The first is to invest in emerging markets, which offer something that India does not. For example, some emerging markets are commodity driven. Some emerging markets like South Korea or Taiwan are technology driven. Thus, emerging markets also offer some diversity. The third is the United States. You can’t build a stock portfolio without the United States. Thus, the United States is clearly the center of all innovation and where most of the world’s global companies are listed on US stock exchanges.

If I was someone looking at a 12-15% return, I would make sure that around 70% of my portfolio is in the Multicap India fund, the Global Emerging Markets fund and the US Equity fund. You can give or take 5%. About 30% would be debt.

Those 70% and 30% depend on what kind of volatility I’m experiencing, whether I’m ahead or behind my return target, and what’s happening in the market. I would use that 30% to allocate sometimes when there is an opportunity or take profit when I have made a lot of money. So I would do it like 70:30. 30 is a balancing factor – the need for money, urgency, emergency funds, a pot to balance or take advantage of opportunities, etc.

I’m not a big fan of trying to maximize the return on debt. So for me that 30 would be a type of three to five year corporate bond portfolio because conceptually I don’t understand junk debt and I don’t see why one should try to maximize the yield of the debt. So I would put it in three to five year corporate bonds with a good rating.

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