Situational guide to investment
Guest Column: Suresh Sadagopan, Founder Ladder7 Financial Advisories

Stock markets are rising again after the fall in February 2018. Interest rates which tapered down are on the rise too. Where should one invest?

A lot depends on one’s situation in life, number of years to retirement, liquidity and regular income needs, risk appetite, taxation etc. Hence, one advice will not fit all. Let us take two cases and see how the portfolio should ideally be structured.

Akshay is 35, working in an IT company and earning well. He has a good risk appetite and can be classified as an aggressive investor. Akshay can hence look to invest 70 per cent of his portfolio in equities and 30 per cent in fixed income securities. Within the equity component, 40 per cent can be in large and large and midcap segment, 25 per cent can be in multicap, 20 per cent in midcaps, 15 per cent in smallcaps. Within the equity portion, 20 per cent of the assets can be in passively managed Index ETFs or Index Funds and the rest can be in actively managed funds.

The fixed income component can be structured to offer liquidity as well as the stability of consistent returns. About 40 per cent of the fixed income portion can be in ultra short-term funds or short-terms funds to provide liquidity, when necessary. The balance can be in fixed maturity plans (FMPs), where the amount gets locked up for the tenure for all practical purposes. The attraction here is that the effective taxation can be much lower than in one’s income tax slab.

Now, let’s take the case of Dilip, a 50 year old veteran working in a pharma company. Dilip can also be classed as an aggressive investor. In his case the equity to debt ratio can be 60:40, considering his high risk tolerance. The equity component can be structured like this - Large cap oriented funds - 40 per cent, balanced funds - 15 per cent, multicap funds - 20 per cent, midcap funds - 15 per cent and small cap funds -10 per cent. Passively managed ETFs/ Index funds can be 30 per cent of the portfolio with the rest under active management. Out of the fixed income portfolio short to medium-term debt funds can be 50 per cent, ultra short-term funds - 25 per cent and fixed maturity plans ( FMPs ) - 25 per cent. This suggestion in fixed income space is offered due to the tax efficiency that is possible for a person in higher income brackets, which Dilip is.

For other income and age brackets, one needs to similarly analyse the personal situation, taxation, income needs, liquidity etc. & tailor a portfolio to suit their needs.