Weekend Bytes
New Year, New Beginnings: Consider Investing in Fund Categories that are Missing in Your Portfolio
As we step into 2025, it would be worth recalling the following quote by Benjamin Graham:
“Successful investing is about managing risk, not avoiding it!”
But, what does this mean? Let us understand this through a small illustrative story:
Although both Ankush and Samaksh have their individual risk appetites, they find Aditya’s investing philosophy to be profound.
Why is that the case? Aditya’s investment process looks to be more well-structured. When investing, allocation of investments can happen at the following levels:
Level 1: Diversification across Asset Classes
Different asset classes perform differently under each market cycle. While equities aims to provide growth to an investor’s portfolio, “Asset Allocation” combines asset classes with low or negative correlation amongst themselves, which helps in managing emotions amidst short-term market volatility, and reducing the volatility of the overall portfolio during period of sharp movements in a single asset class.
The Fund Category that can help investors diversify across asset classes are as follows:
Level 2 Diversification within Asset Classes
Within Equity:
Winners amongst market cap segments and sector keep changing. Since investing individually in each market cap segment / sector can be an uphill task, it would be wise to invest in set of diversified equity-oriented funds that provides diversification across multiple market cap segments and sectors.
The Fund Categories that can help investors diversify within equities are as follows:
Within Fixed Income:
Winners across maturities and credit profiles keep changing based on outlook on interest rates, economic growth, inflation, amongst various parameters. Hence, it is wise to invest in set of diversified debt-oriented funds that provides diversification across different maturities and credit profiles.
As per our recent Monetary Policy Review Note, yields are likely to trade with a downward bias, with the long end of the yield curve likely to outperform over the medium term. Hence, investors with a longer investment horizon, could consider investing in longer duration funds as per individual risk appetite.
Level 3: Allocation for Emergency Purposes
It is always prudent to invest a small percentage of your income to funds that are relatively more stable and liquid in nature to meet any exingency requirements.
For this purpose, you can consider investing in the following Fund Categories:
So, how to understand the Fund Categories that are missing in your Portfolio?
Using the above mental model of categorization, it is important for you to understand what gaps in your portfolio need to be filled. To go about the same, seeking guidance from a financial expert would be ideal, as he / she would help you in understanding your portfolio mix.
Based on your investment goals, risk profile and proposed portfolio mix, there are broadly 2 ways in which you could start investing in fund categories that are missing in your portfolio:
- Allocate additional investments to the under-allocated categories
- Rebalance your current portfolio by shifting your investments from over-allocated to under-allocated categories
Ultimately, as the saying goes:
" Opportunities don’t happen. You create them by investing wisely!"
DISCLAIMER: THE PERSONS MENTIONED ABOVE ARE FICTITIOUS CHARACTERS, THERE IS NO RESEMBLANCE TO ANY PERSON. THE STRATEGY EXPLAINED IN THIS DOCUMENT IS FOR GENERAL PURPOSES ONLY AND NOT AN INVESTMENT ADVICE. READERS SHOULD SEEK PROFESSIONAL ADVICE BEFORE TAKING ANY INVESTMENT RELATED DECISIONS
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY
