From stock management to portfolio mix, here's how to invest Rs 10 million

See the table below to understand how a 35-year old can allocate 50-70% while a 45-year old can allocate 40-60% to equities

Decide on an asset allocation that suits your risk appetite and invest in the right instruments for long-term goals such as retirement, four wealth management experts say

Go overweight on equities

Abhijit Bhave, CEO, Karvy Private Wealth

According to a rule of thumb, a person’s allocation to equities in a portfolio should be 100 less age. A 35-year-old should invest 65 per cent in equities and the rest in other asset classes. However, based on our house view, we are overweight on equities currently, and will hence tweak the allocation to 115 less age. A 35-year-old having an aggressive risk profile should, therefore, allocate 80 per cent to equities and less to other asset classes.

A person’s risk profile and risk tolerance also need to be taken into account. Risk profile depends on age (a younger person can take more risk), number of dependants (higher the number, lesser the risk-taking ability), predictability and stability of income, and so on. Based on risk profile, investors can be categorised into conservative, moderate and aggressive (see table for suggested asset allocation). 

Invest the equity portion in a mix of direct equities, mutual funds, and portfolio management scheme (PMS) in the ratio of 20:60:20. The equity exposure of a conservative and an aggressive investor can be 10-15 percentage points on either side of the moderate investor. The remaining portion of the portfolio can be allocated among other asset classes.

Give primacy to stocks

Nishant Agarwal, managing partner and head-family office, ASK Wealth Advisors

For individuals aged 35 and 45 years, who wish to invest a lump sum corpus of Rs 10 million for retirement, I have the following suggestions. Since the holding period is long, they should invest primarily in equities through professional managers. The overall portfolio should consist of equity mutual funds, debt mutual funds or bonds, gold and global equities. 

A 35-year old can allocate 50-70 per cent while a 45-year old can allocate 40-60 per cent to equities (see table). The band can move up in steps of 10 percentage points for conservative, moderate and aggressive investors in the respective age groups. Invest in equities through mutual funds having proven long-term track records. Invest around 60 per cent in large-cap funds, 30 per cent in flexi-cap funds, and up to 10 per cent in mid- and small-cap funds. Direct stock investing should be avoided as it requires constant monitoring and changes. About 25-40 per cent of desired equity allocation may be made upfront and the balance should be invested over 12 months via SIPs.

Investment in debt can be made using a combination of tax-free bonds, high credit quality debt mutual funds and a select few corporate fixed deposits or bonds (REITs, when launched, can also be a worthwhile option). 

Gold and global investment should be capped at 15 per cent of the corpus for both 35- and 45-year old individuals. Investment in gold should be made through sovereign gold bonds. Global diversification can be achieved by either investing in feeder funds of reputed fund houses or through global funds investing in stocks of developed markets (through the Liberalised Remittance Scheme route).

Asset allocation determines returns

Sandeep Jethwani, managing partner, IIFL Investment Managers

Why bother with asset allocation at all? Studies across time periods and markets have shown that 85-90 per cent of returns can be attributed to asset allocation, and not to choice of instruments. Since equities tend to be volatile, one needs to invest in a diversified mix of asset classes. 

Assuming that a mass affluent or HNI individual already has exposure to real estate (self-owned house) and gold (through jewellery), a healthy financial portfolio can be built using a mix of equities and debt in alignment with the investor’s risk profile. 

For individuals working towards building a retirement corpus, we need to keep in mind the residual income earning life and risk tolerance. Accordingly, we have given the asset allocation for two individuals who have 15 and 25 years of work life ahead of them. In both cases, they are assumed to be well-insured, with no immediate lump sum liabilities to address (see table for asset allocation). 

Since individuals may not have the time and expertise to keep altering their allocation to mid- and small-cap funds, which tend to be highly volatile, they should stick to a mix of large-cap and multi-cap funds within their equity allocation. Deployment of target equity allocation should be done in 12-18 equal monthly tranches via a systematic investment plan. When investing in debt funds, stick to funds having high credit quality and low to moderate duration. Deployment can be done upfront.

Stick to your portfolio mix

Rahul Jain, head–personal wealth advisory, Edelweiss Wealth Management

The starting point for any portfolio construction is to decide on asset allocation, which varies with age and risk appetite. The thumb rule for asset allocation states that hundred minus the age should be allocated to equities. If risk appetite is low or moderate, the equity allocation can be tweaked accordingly.

A variety of options are available for making equity investments: Portfolio management service (PMS), alternate investment funds and diversified equity funds. PMS with higher exposure to mid- and small-cap stocks is ideal for investors having a high risk appetite and an investment horizon of more than three years. 

Balanced funds and equity savings funds are ideal for those having moderate risk appetite. These products come with exit loads, so invest in them only if your investment horizon is sufficiently long. 

On the debt side, you may invest in debt funds, tax-free bonds, and non-convertible debentures. You may consider structured products like equity-linked debentures, too, if you have some amount of risk appetite.