How to Build a Balanced Portfolio of Mutual Funds

balanced portfolio of mutual funds

The three key steps for creating a perfect portfolio – asset allocation, choice of funds, and plan of action to take care of the portfolio. Here are the excerpts of the session. 

Asset Allocation
Investors’ timeframe determines their risk appetite and the balanced asset allocation range as well.

Time FrameEquity%Debt%Gold%
0 to 12 months01000
1 to 2 years0-1090-1000
2 to 3 years10-1585-1000
3 to 5 years15-5050-850-10
5 to 7 years40-6535-600-15
7 to 10 years50-7030-500-15
> 10 years50-8020-500-15

Choice Of Funds
Portfolios of beginners for small investments could comprise 2-4 funds with the least extreme risk funds in equity or debt. With time, it can exceed up to 6-12 funds. The selection of funds may be the function of one’s time frame, risk appetite, and therefore, the role each fund category plays in a very portfolio.

To curtail the Equity portfolio volatility, each fund category is allocated a particular proportion. These volatilities are reflected through their variance supported by 1-year returns rolled daily for the last 3 years.  Within equity, the asset mix is influenced by investors’ risk appetites.

Investors’ RiskModel Allocation
Moderate:40% in large-cap, 20% in large & mid-cap/multi cap, 30% in flexi cap and balance 10% in international funds
High-Risk Investors:50% in Flexi cap, 15% in mid-cap, 15% in small-cap and 20% in international funds

Certain Debt fund categories should be held for a minimum of a specific period for allowing them to play out through cycles. Investors should diversify short-term debt across AMCs, whether or not answering duplication. However, when it comes to long-term debt like high-quality low credit risk categories like dynamic bonds or corporate bonds, duplication must be avoided. Talking about the inner asset mix, the investor’s time frame plays an important role.

Time FrameModel Allocation
3-Years Portfolio with Liquidity15% in ultra-short/low duration, 15% in floating rate, 20% in short duration/banking & PSU, 50% in corporate bond/medium duration
3-Years Portfolio15% in floating rate, 35% in brief duration/banking & PSU, 50% in corporate bond/medium duration
5-Years Portfolio10% in floating rate, 30% in short duration/banking & PSU, 50% in corporate bond/medium duration, 10% in gilt/credit risk
5-Years Portfolio with Liquidity10% in ultra-short/low duration, 10% in floating rate, 30% in brief and lower volatility/credit risk-duration/banking & PSU, 50% in corporate bond/medium duration

Hybrid funds, which are a pre-mix of debt and equity, play a limited role as open-ended funds comprise both asset classes. A plan of action to take care of the portfolios helps to settle between actives and passives. Active funds incorporate active management for annual rebalancing and semi-annual reviews.  However, they must not be over-reviewed. On the contrary, passive funds are recommended where regular reviews are difficult. However, they ought to be rebalanced annually.

Please follow and like us:

Leave a Comment

Your email address will not be published.

(SCSS) Senior Citizens Savings Scheme: Tax Benefit & Features

(SCSS) Senior Citizens Savings Scheme: Tax Benefit & Features

Retirement Planning Tax Saving
A savings program designed for older citizens over 60s in India is usually called the Senior Citizens Savings Scheme (SCSS)....
Read More
Today’s Stocks Market Updates (25 January 2023)

Today’s Stocks Market Updates (25 January 2023)

Market Update
VALUATIONS SENSEX PE Ratio 22.82 NIFTY PE Ratio 21.19 Source: NSE and BSE BSE SENSEX60205.06 -773.69-1.27%NIFTY 5017892.00 -226.30-1.25%NIFTY Bank41647.70 -1085.70-2.54%BSE...
Read More
(NPS) National Pension System: Benefits, Interest Rate and Eligibility

(NPS) National Pension System: Benefits, Interest Rate and Eligibility

Investing Pension Tax Saving
A public defined contribution retirement savings plan is known as a National Pension System (NPS). The NPS wants to encourage...
Read More
Today’s Stocks Market Updates (24 January 2023)

Today’s Stocks Market Updates (24 January 2023)

Market Update
VALUATIONS SENSEX PE Ratio 23.13 NIFTY PE Ratio 21.49 Source: NSE and BSE BSE SENSEX60978.75 37.080.06%NIFTY 5018118.30 -0.200.00%NIFTY Bank42733.40 -87.90-0.21%BSE...
Read More
(Equity Linked Savings Scheme) ELSS Funds: Meaning, Full Form & Interest Rate

(Equity Linked Savings Scheme) ELSS Funds: Meaning, Full Form & Interest Rate

Investing Mutual Funds Tax Saving
If you are a beginner investor, ELSS is the greatest choice since it offers tax benefits, gives you a taste...
Read More
Today’s Stocks Market Updates (23 January 2023)

Today’s Stocks Market Updates (23 January 2023)

Market Update
VALUATIONS SENSEX PE Ratio 23.17 NIFTY PE Ratio 21.60 Source: NSE and BSE BSE SENSEX60941.67 +319.90+0.53%NIFTY 5018118.50 +90.80+0.50%NIFTY Bank42821.30 +314.50+0.74%BSE...
Read More
National Savings Certificate (NSC): All Features & Tax Benefits

National Savings Certificate (NSC): All Features & Tax Benefits

Investing Tax Saving
NSCs, or National Savings Certificates, can be used as security for bank loans. According to Section 80C of the Income...
Read More
Today’s Stocks Market Updates (20 January 2023)

Today’s Stocks Market Updates (20 January 2023)

Market Update
VALUATIONS SENSEX PE Ratio 23.43 NIFTY PE Ratio 21.46 Source: NSE and BSE BSE SENSEX60621.77 -236.66-0.39%NIFTY 5018027.70 -80.10-0.44%NIFTY Bank42506.80 178.000.42%BSE...
Read More
Deductions Under Section 80D- Benefits & Works

Deductions Under Section 80D- Benefits & Works

Finance and Economy Tax Saving
Meaning & Benefits of Section 80D:-  A, Definition and key goals of section 80 D:- Budget 2018 increased the deduction...
Read More
1 2 3 32
Social media & sharing icons powered by UltimatelySocial