Tilt your portfolio towards equity

By Morningstar |  02-06-20 | 

I am 45 years old, the only earning member in my family, and have 3 dependents (5-year old, 1-year old, spouse). I have no loans.

What is your view on my portfolio?

Should I have a global fund in my portfolio? Since January this year, I began investing in Motilal Oswal Nasdaq 100 Fund of Fund. I thought of investing in it for the next 4.5 years.

I have 3 goals. A retirement corpus (Rs 3 crore), Children’s education (Rs 1 crore), Child’s marriage (Rs 10 lakh).

This is my current portfolio:

  • Stocks: Rs 6 lakh
  • Mutual funds: Rs 18 lakh
  • Fixed deposit: Rs 9 lakh (emergency fund)
  • Gold: Rs 10 lakh
  • PPF: Rs 15 lakh
  • EPF: Rs 30 lakh

For portfolio construction, an asset allocation-based approach (mix of equity, debt, commodities) should be followed as it is one of the key determinants of the portfolio’s performance. Higher the investment horizon and risk appetite, higher can be the allocation to riskier asset classes such as equity, which have the potential to deliver relatively higher returns compared to fixed income over the long term.

Assuming an aggressive risk profile, given no liabilities and the long investment horizon, here is what we suggest:

  • Domestic Equity: 65% into equities
  • Fixed Income: 15%
  • Gold: 10%
  • International Equity: 10%

As far as the equity allocation goes, large cap dominates (50%), followed by mid cap (10%) and small cap (5%).

However, your current portfolio allocation is considerably skewed towards fixed income instruments (over 60%) and is fairly illiquid (PPF and EPF).

Hence, for tax savings you should re-direct future PPF investments into ELSS mutual funds, which offer tax deduction under Section 80C, to increase the equity exposure.

You can also consider investing in the National Pension Scheme, to avail an additional tax deduction of Rs 50,000.

Re-direct the mutual fund allocation entirely into equity based mutual funds to align your portfolio closer to the target equity allocation.

Restrict the direct equity exposure to a small portion of the portfolio. Equity mutual funds offer professional expertise backed by in-depth research at reasonable costs, and relieve investors from the need to actively track each investee company.

As your retirement goal approaches (3-4 years before retirement), shift allocation out of equity into debt funds.

Allocation to gold, for fundamental diversification purpose, should be typically capped at about 5-10% of your portfolio.

Keep increasing your savings and investments every year as you get increments. Continue investing through the SIP route, which offers the benefits of cost-averaging in volatile markets. Do read How a raise can work against you. Also read How to defeat lifestyle creep.


It is advisable to have a term insurance and health insurance policy in place, to safeguard your goals in the event of any untoward incident.

Motilal Oswal Nasdaq 100 Fund of Fund

This fund-of-fund invests in Motilal Oswal NASDAQ 100 ETF, which in turn tracks the performance of the NASDAQ 100 index. The Nasdaq 100 Index is a basket of the 100 largest, most actively traded U.S. companies listed on the Nasdaq stock exchange.

The fund presents an opportunity for investors to diversify their portfolio by taking exposure to stocks in the U.S.

Global exposure

One should also have some exposure to International equities, which offer diversification across geographies via exposure to different economic growth drivers and also acts as a hedge against domestic currency risk.

From a fundamental diversification perspective, you may consider allocating 5% - 20% of the overall portfolio to international equities, based on investor's risk profile.

Developed markets have significantly outperformed emerging markets by a fair margin over the trailing 5- and 10-year periods (both in USD and INR terms).

With respect to the fund you have invested in, the NASDAQ 100 is a fairly concentrated index with a high allocation to technology (45%) and communication services (20%) sector. Also, from a valuation standpoint, the index is expensive relative to the S&P 500 index, with most of the technology stocks trading at steep valuations.

It is advisable to invest in diversified funds as they are relatively less volatile than concentrated funds, which are dependent on the performance of one or two sectors only. There are mutual funds domiciled in India which offer investments in international markets such as the U.S., Europe, Asia ex-Japan and China.

For your desired exposure to U.S. equities, you can consider investing into ICICI Prudential U.S. Bluechip Fund, which is a diversified fund investing directly into U.S. equities.

Please consult your financial adviser before taking any investment decisions.

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