Diversify your portfolio to even out market volatility

During such times, one should invest some amount in gold as gold tends to do well when equities don’t do well. Investing in a balanced fund that invests in equities and debt and such hybrid structures rather than purely equity funds would help to reduce market losses.

Below is the edited transcript of Gupta's interview with CNBC-TV18. Also watch the accompanying video.

Q: An investor can invest Rs 8,000 per month. His goal is to make around Rs 25-50 lakh over a period of 20 years. The investor has a SIP of Rs 2000 per month and a bank fixed deposit of Rs 5 lakh.

A: I suggest he focusses on more risk taking assets that can give him that incremental rate of return because he already has an FD in place. So he can allocate Rs 8000 between three categories; one in gold ETF or a gold fund like HDFC Gold Fund or a Goldman Sachs Gold ETF.

The second in a good large cap equity fund like Franklin Blue chip, and then a smaller amount in something like a midcap fund to give him that extra kicker in his portfolio like IDFC Premier Equity. So these would be the recommended stretch. If he doesn’t have insurance, he could take a simple term insurance at this point.

Q: Midcaps have not seen any recovery for so many years now and many of them have become like Rs 20-30 stocks, you wouldn’t worry about that?

A: I would not if I were investing one in a midcap fund that had the ability to select good midcaps. Secondly, if I were doing an SIP, I would not invest in any scenario a lump sum into midcaps or large cap for that matter. I would always do an SIP so you smooth out some of the market volatility that you are talking about.

Q: An investor can invest Rs 25000 per month. His goal is to achieve maximum returns over a period of 10 years. Currently, he has investments of Rs 13000 per month in general provident fund (GPF) and some insurance provide by company and medical insurance for the full family. How should he allocate the money?

A: Since he has got a shorter term goal, he is older and he has a specific goal where it is important that he protects his capital, I would recommend a more conservative portfolio for him. Of this Rs 20,000 again, he can invest in SIP into 30-40% equities, 30% gold and then the balance in some kind of short term fixed income instruments like an ICICI Short Term Plan.

On the equities, I would again recommend large cap equities like HDFC Equity or Franklin Blue Chip and then gold through an ETF.

Q: If someone wants to keep out of equities for a while after having burnt their fingers, what would you recommend? Is it more gold that’s being favored or are the tax free bonds being favored at this juncture?

A: There are two or three options. Gold is also a very risky asset class so dumping all your money into gold doesn’t make sense. But it is always good to have a little bit in gold because gold tends to do well when equities don’t do well. The other thing you can do is a balanced fund like Franklin Templeton PE Fund, which basically invests in equities and debt depending on where the market is. So invest in some of these sort of hybrid structures that combine and equity and fixed income which is less riskier than equity mutual funds.