[DigitalOne]

PPFAS may re-categorize its fund as a Value fund. I believe "value" is still a subjective classification and till the time SEBI unnecessarily pokes it's nose into this category PPFAS may be able get through.

I hope AMFI slaps a case against SEBI for this regulatory overreach and needless micromanagement.

[adimicra]

Originally Posted by SmartCat

Problem with this strategy is that the current index PE ratio depends on a number of factors:

- Rare events like Covid-19 or War can serious affect the earnings of company earnings in the short term. If all companies report an average of 50% drop in earnings, then PE ratio will double. So despite a falling market, Nifty PE will still be around 30 or 40.

- The composition of an index can change over time, with larger allocation towards Tesla like companies with no earnings but huge valuation. So there is a possibility that average PE ratio of an index keeps going higher and higher, when compared to its long term average. In India's case, NIFTY had a high allocation to PSU & private sector banks in 2017/18. But large NPAs resulted in losses or drastic drop in earnings, spiking up the PE Ratio of Nifty.

- There is a link between interest rates & stock market index PE ratio. 40 years ago, S&P500 average PE ratio was 10 or 12. But now, S&P 500's average PE ratio has been 20 to 25. That's because interest rate in US and other developed countries have been dropping steadily over the past 40 years, making stocks more attractive (since fixed deposits yield nothing). Even in India, if interest rates keep dropping, Nifty's average PE ratio will keep rising over time.

So essentially, the problem with your strategy is fixing the PE ratio number and linking it to asset allocation between debt and equity.

Thanks as always for your sound advice. Unfortunately, the market crash in March really hit me hard as I had almost 100% of my investments in equity and that too in midcap and smallcap funds. I went through lot of mental stress and sold 40%-50% of my holdings at 9500-10000 and booked some losses (around 10% loss). I did a lot of reading over the last few months and understood the importance of asset allocation. Post that, I have been trying to follow a top down approach to investing -
1. Determine asset allocation between equity, debt and gold.
These are the ranges for me -
Equity: min 30, max 50
Debt: min 30, max 50
Gold: min 10, max 20.

2. In each asset class, determine the right mix.
For example, largecap 60%, midcap 20%, international 20%.
Use the right instrument for meeting these like index funds or diversified equity funds (multicap was a good option before these announcements) r direct equity. For international exposure, use S&P index fund or PPFAS indirectly. I am using PPFAS, index funds and some direct equity.

3. Rebalance regularly whenever your asset allocation changes by 5% or more due to relative outperformance/underperformance of one asset class over others.

My questions are -
1> I am yet to find a good formula/guidance to determine asset allocation. Any suggestions are welcome. Currently, given the volatility and recent run up in equity, I am maintaining a defensive strategy with equity 35, gold 15 and Debt 50

2> What type of funds to use in debt? I am putting max amount in EPF/VPF for retirement but can't park the entire amount there for shorter term goals. SO, considering 5 year horizon, what type of funds are advisable? I am using short term or ultra short term funds. Given the current interest rate scenario, long term gilt funds are advisable? If the interest rates remain steady at these levels, then how gilt funds are expected to perform. I feel interest rates going down further from here are less likely. I am very less experienced in debt. So, would like to hear from experienced investors.

[SmartCat]

Originally Posted by adimicra

I am yet to find a good formula/guidance to determine asset allocation. Any suggestions are welcome. Currently, given the volatility and recent run up in equity, I am maintaining a defensive strategy with equity 35, gold 15 and Debt 50

There is no fixed formula here - it depends on each individual's age and income profile. If you have a "safe job" or stable business that generates steady cash flow, and you are atleast 10 years from retirement, you can afford to have a high volatility portfolio. That means you can allocate higher percentage to stocks (including a tilt towards mid & small caps). Conversely, if you are close to retirement and/or if your job is "not safe" or business income is not stable, you should opt for a portfolio that has low volatility. That means low allocation to stocks (but within that, higher allocation to large caps), large allocation to debt (fixed deposits, liquid funds) and the standard 10 to 20% allocation to gold (acts as a hedge).

So yes, your 35% equities/15% gold/50% debt allocation is quite conservative - but you can squeeze some juice out of this strategy investing more in mid & small caps and g-sec funds. Since g-sec funds are more volatile, you can squeeze extra returns out of it by buying when g-sec fund NAVs are falling. Remember that allocating higher or lower percentage is not enough - you should be disciplined enough to buy these assets when they are falling. And more importantly, NOT buying these high volatility assets when they are rising. This can be automatically achieved by target asset allocation and rebalancing.

Essentially, do the exact OPPOSITE of what the crowd usually does

What type of funds to use in debt? I am putting max amount in EPF/VPF for retirement but can't park the entire amount there for shorter term goals. SO, considering 5 year horizon, what type of funds are advisable? I am using short term or ultra short term funds. Given the current interest rate scenario, long term gilt funds are advisable? If the interest rates remain steady at these levels, then how gilt funds are expected to perform. I feel interest rates going down further from here are less likely. I am very less experienced in debt. So, would like to hear from experienced investors.

Answered partly above. Your investment in debt should be based on how much volatility you want. If you want stable returns, opt for FD/PPF/liquid/overnight funds type of investments.

But if you want to be strategic about your debt investment, opt for g-sec funds. Don't bother about "interest rates" because it is unpredictable. Start with a target allocation towards g-sec funds (anywhere between 10% to 33%) and look to maintain this allocation till your retirement. This means, you should be buying g-secs when its NAVs are falling. By design, there is a guarantee of positive returns if you average down g-sec funds.

[pradkumar]

Explained: Sebi’s multicap directive — why are mutual funds unhappy?

Fund houses will be forced to go for a portfolio reshuffle over the next few months and shift their allocation of multi-cap funds from heavily weighted large-cap companies to mid and small-cap companies...
https://indianexpress.com/article/ex...happy-6593096/

[nitinkbhaskar]

And this is the reason I believe in investing via index funds or standalone equities - > RIL share price surge

Simply put with index funds you are always going to grow with market (in long term) but with private house mutual funds there is always a probability of lower returns than market.

[adimicra]

Originally Posted by SmartCat

There is no fixed formula here - it depends on each individual's age and income profile. If you have a "safe job" or stable business that generates steady cash flow, and you are atleast 10 years from retirement, you can afford to have a high volatility portfolio. That means you can allocate higher percentage to stocks (including a tilt towards mid & small caps). Conversely, if you are close to retirement and/or if your job is "not safe" or business income is not stable, you should opt for a portfolio that has low volatility. That means low allocation to stocks (but within that, higher allocation to large caps), large allocation to debt (fixed deposits, liquid funds) and the standard 10 to 20% allocation to gold (acts as a hedge).

So yes, your 35% equities/15% gold/50% debt allocation is quite conservative - but you can squeeze some juice out of this strategy investing more in mid & small caps and g-sec funds. Since g-sec funds are more volatile, you can squeeze extra returns out of it by buying when g-sec fund NAVs are falling. Remember that allocating higher or lower percentage is not enough - you should be disciplined enough to buy these assets when they are falling. And more importantly, NOT buying these high volatility assets when they are rising. This can be automatically achieved by target asset allocation and rebalancing.

Essentially, do the exact OPPOSITE of what the crowd usually does

Very sound advice and I have considered all these factors to determine asset allocation. I have just entered the 40's and intend to have the ability to retire by 50. Please note that the 35% equity allocation is covering all assets like EPF, LIC, PPF etc. Many people do not consider these as part of the debt allocation. I strongly believe after lot of studying and data crunching that normal investor should NOT invest more than 50% in equities. And, within equities, exposure to mid and smallcap should be restricted to 25-30%. But, obviously it is an individual's choice.

What I was looking for is how to change the equity allocation dynamically looking at market condition, interest rates etc. I don't even know if it's worth the hassle as predicting market is very difficult. SO, the simple strategy could be to simply adjust the asset allocation based on the risk profile. So, if don't need the money in 10 years, maintain 50% equity. As you grow older, wind it down to 40% and then 30% and so on....

Based on my current risk profile, I intend to maintain 40%-45% equity 15%
gold and rest debt. I will accumulate some as the market falls.

[SmartCat]

Originally Posted by adimicra

What I was looking for is how to change the equity allocation dynamically looking at market condition, interest rates etc. I don't even know if it's worth the hassle as predicting market is very difficult. SO, the simple strategy could be to simply adjust the asset allocation based on the risk profile.

Not worth the trouble. Just keep it simple, and stick to (fixed percentage + rebalancing) strategy.

But if you are interested, there are a couple of FoFs that allocate capital towards equity & debt is mostly based on PE ratio of Nifty 50 or BSE 500. Look at their long term performance data and then take a call. Examples:

Franklin India Dynamic Asset Allocation Fund of Funds
https://www.valueresearchonline.com/...fund-of-funds/

The scheme aims to provide long-term capital appreciation with relatively lower volatility through a dynamically balanced portfolio of equity and income funds. The equity funds allocation will be determined based on the month-end weighted average PE Ratio and PB Ratio of the Nifty 500 Index.

HDFC Dynamic PE Ratio Fund of Funds - Regular Plan
https://www.valueresearchonline.com/...s-regular-plan

There might be more such funds. Google search "PE ratio fund" or "dynamic PE fund"

[DigitalOne]

All NSE small cap indices up by 5-6 % today consequence of the multi-cap MF allocation rule.

Just last week, I redeemed substantial chunk from Nippon India Small cap fund to reduce portfolio risk .

[adimicra]

Originally Posted by DigitalOne

All NSE small cap indices up by 5-6 % today consequence of the multi-cap MF allocation rule.

Just last week, I redeemed substantial chunk from Nippon India Small cap fund to reduce portfolio risk .

One lesson in investing is never to repent as long as you are sticking to a disciplined process and not taking adhoc decisions.

I don't think this euphoria will last at all. As SEBI has clarified, MFs have the flexibility to move to a different category or merge their funds. And all Fund managers including PPFAS that they are looking at different strategies so that they dont need to forcibly invest in mid/small caps. This kind of forced investment is never going to work over time and there is a high chance of investors getting stuck in poor quality stocks if someone gets too greedy and want to play this euphoria. On the other hand I feel some of the quality FMCG/Pharma companies might provide good buying opportunity if the correction continues for some sessions

PS - As I mentioned earlier, I think SEBI has virtually killed the multicap segment as it is not going to be suitable for most investors (if at all anyone). I feel even some of the Midcap funds might be less risky or less volatile than the new multicap funds (many midcap funds have 10% or less exposure to smallcaps).

[creative420]

Need advice on the category allocation. Right now, my investment ratio to ELSS : Largecap : Smallcap is 73:16:11

Should I tweak it a bit? I invest 25K per month via Fundsindia. I'm thinking of investing about 40K per month over the next month or two, so do let me know which category should I invest in?

One more thing, I'm considering moving out of FI as they don't offer any advice like they used to when I signed up. Which platform/app do you guys reckon is better?

[adimicra]

Originally Posted by creative420

Need advice on the category allocation. Right now, my investment ratio to ELSS : Largecap : Smallcap is 73:16:11

Should I tweak it a bit? I invest 25K per month via Fundsindia. I'm thinking of investing about 40K per month over the next month or two, so do let me know which category should I invest in?

One more thing, I'm considering moving out of FI as they don't offer any advice like they used to when I signed up. Which platform/app do you guys reckon is better?

My advice after going through lot of articles and data around MF performances, I would not recommend actively managed largecap funds as most of them are unable to beat Nifty or Sensex after recategorizaiton.

SO, for largecap. go for passive funds like Index funds based on Sensex/Nifty/Nifty 100/Nifty 100 equal weight. Alternatively, if you want to reduce risk, go for aggressive hybrid funds as most of them are able to beat Index/Largecap funds when markets are volatile. Please note that they will underperform in strong bull markets.

I would avoid smallcap mutual funds completely. Go for good quality midcap funds instead which have some exposure to smallcap anyways.

Also, would advise some multi/flexicap fund like PPFAS Long term equity which also provides exposure to US markets as well. If you don't invest in something like PPFAS, would recommend exposure to US markets through some index fund.

SO, my recommendation -
Option 1 - PPFAS LT equity (40%), Aggressive hybrid fund (40%), midcap fund (20%)
Option 2 - Nifty index fund (30%), Nifty next index fund (30%), Midcap fund (20%), S&P 500 index fund (20%)

Good luck.

[poloman]

A 164% surge in Reliance Industries Ltd NSE 0.71 %. -- India’s largest stock by market capitalization -- accounted for about 43% of the benchmark S&P BSE Sensex Index’s rally since equities bottomed on March 23. In comparison, the so-called FAANG stocks in the U.S. made up 22% of the S&P 500’s surge during the same period, according to data compiled by Bloomberg.

https://economictimes.indiatimes.com...w/78122772.cms

This is the current state of affairs in the market. Too much concentration of money in few stocks. That may be one reason why SEBI issued the multicaps to reshuffle the portfolios.

[cyclops]

Whats the equivalent of VTI or SPY (available in NYSE) which we can get in India?

[anandhsub]

Originally Posted by cyclops

Whats the equivalent of VTI or SPY (available in NYSE) which we can get in India?

The equivalent ETF would be the NIFTYBEES but it isn't very liquid. Sometimes trades at large discounts/premiums to the NAV

[rayjaycleoful]

I have been investing in SBI GILT and Axis Blue Chip via SIP mode for almost a year now - Can't say I'm too happy about the earnings but given economic scenario it's okay I think.

I would now like to add a third mutual fund to my portfolio, however in the International Equity space for a little global diversification. I have shortlisted the Franklin India Feeder Franklin US Opportunities Fund based on Fund size + past few years growth.

Questions to members;
1. I cannot see the stock holding data of this fund whereas this information is available for fund like ICICI Prudential US etc.
2. Does it make sense to initiate a US focused fund at the moment considering trade frictions, elections, etc.

P.S.: I am 23 years old and looking for long term growth, 5-10 years atleast