Conservative investors can try out this MF portfolio

In a high inflation economy like our’s it is almost an imperative to invest in equity as an asset class for any long term goals.  Investment in debt products will simply not have the required growth to meet your long term goals be it children’s higher education, their marriages or your retirement. Despite this it is an unfortunate reality that many investors shy away from investing in equity and go for products that are clearly not suitable.

One of the main causes for this is the volatile nature of the stock markets and how it is hyped up by the business media. The doom and gloom scenario often painted by the TV channels and the newspapers make it seem that the stock markets are only a little better than gambling casinos, where only the exceptionally skilled or lucky people will have any chances of decent returns. Many investors are temperamentally not suited to high volatility and it is almost impossible for them to see a reduction in their capital value, even if the decline may be only temporary in nature.

While I can understand the psychology of such investors, their investments in fixed income and other debt products will unfortunately not take them very far. With the FD rates coming down in a relentless manner we will very soon have rates below 7 %. Investing at these rates of return when real inflation is equivalent or higher for most items of expenditure. In order to get these type of investors started in equity investments. what is really needed is a low volatility portfolio which will be able to manage the anxiety levels and hopefully pave the way for them to take a little more risk as time goes by.

The below conservative portfolio has been designed by Dhirendra Kumar of Value Researcn Online and was televised in the program “Investors Guide” in ET Now. Over the last 10 years, an investment of 10000 Rs per month has yielded an XIRR  of 10.5 %. While this is not earth shattering, it is way better than some of the returns investors are getting from their current fixed income and other debt instruments. The 4 funds in the portfolio are:-

  1. FT Dynamic PE Ratio fund.
  2. HDFC MIP.
  3. Reliance MIP.
  4. Tata Balanced fund.

The reason the portfolio works is simple – it tries to take the advantage of equity returns while lowering risks wherever possible. For example, the FT fund invests more in equity when the PE is lower and shifts money to debt when the PE begins to heat up. The Tata Balanced Fund has a similar mechanism, though the way it is done will be different. Also, in a Balanced fund 30 % or more is always in Debt anyway. The MIP funds will have much of the money in Debt but they are able to take advantage of equity buying at the right times in order to increase their returns overall. So, while the returns of this portfolio will never be spectacular due to the reasonably high debt component at most times, the risks are definitely on the lower side. In other words, a perfect recipe for conservative investors.

If you are hesitant about starting your equity investments you can begin with this portfolio. Over a period of time, you will be glad that you took the plunge.


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