Expert advice

Jun 05, 2012,13.18 IST

Cut gold exposure to 5-7% of portfolio: Lovaii Navlakhi

With gold at new highs around the Rs 30,000 per 10gm mark, Lovaii Navlakhi of International Money Matters tells CNBC-TV18 that investors should cut their exposure in the precious metal and look to book profits. “We are recommending a cut in allocation because you have made a lot of profit, but typically look at 5-7% of your total net worth in gold,” he advised.

He also says that investors should be certain about their time horizon and end goal because it makes it easier in financial planning. He further adds that investors should look to distribute their investments over the year instead of doing it as one single lumpsum.

His top bets among equity mutual funds are DSP Blackrock Top 100 and ICICI Pru Dynamic plan. “On the fixed income side there is ICICI regular savings plan,” he added.

Below is an edited transcript of his interview. Also watch the accompanying video.

Q: Investor wants to invest Rs 25,000 per annum and aims to make Rs 800,000 in 10-15 years. His age is 32 and has a Bajaj Allianz Life Insurance policy with a premium of Rs 25,000 per annum and sum assured of Rs 125,000. How should he allocate his money?

A: Since he has mentioned that his time horizon is 10-15 years, I would just like to put in perspective that if he earns something like 9% per annum, he will achieve his goal in 15 years. If he wants to make the end target of Rs 800,000 in 10 years, then the returns required are as high as 20% per annum. So when people give their estimate of when they require their goals to be met, if they are little more precise it would certainly help. So I am going to go on the assumption that he is fine with meeting his goals in the next 15 years.

So at a 9% per annum sort of return that he needs, he actually needs to put only 25% of his money in equities and 75% in fixed income. Just because his time horizon is long, I would rather go with a 50-50 allocation today and then over the period of next 5-6 years start cutting down the equity allocation.

If he is looking for specific schemes where he can park his money, then couple of equity funds that I can think of is DSP Blackrock Top 100, ICICI Pru Dynamic plan. On the fixed income side there is ICICI regular savings plan.

Since he is talking about a lump sum investment and he is going to do it once a year, I don’t want it to all go into equity at one shot. It can possibly go into a liquid or a money market fund and then do a systematic transfer.

Q: An investor wants to invest Rs 2 lakh a year and wants to know how he should allocate the money if he wants Rs 5 lakh in two years?

A: I think there are two big risks in this. He has a two year time horizon and he has Rs 5 lakh target. He wants to put Rs 2 lakh per year, so only if he gets 16% per annum will he meet his goal. That means all his money has to be in equities because in fixed income he will not achieve this goal.

So there is the problem that his allocation will be 100% equity. On the other side, the risk is that if I am investing in equities, we would advice our clients to look at minimum three years possibly even five years as a time horizon. If he can push his target back by at least a year it would certainly help to try and create a portfolio for him.

Q: What will be the top equity mutual funds that you would recommend?

A: If it is equity mutual funds, typically our approach is to look at more largecap if he is a first time investor and then add midcap funds, provided his time horizon is more than five years.

In the largecap space, look at DSP Blackrock Top 100 or ICICI Focus Blue Chip equity which are good. In this case, because he has two year time horizon, what we are looking at is things like FTP Fund Dynamic PE Fund of Funds and an ICICI Regular Savings Plan. So it’s a little more conservative if he has a two year time horizon.

Q: Are you recommending gold at this juncture or at more than Rs 30,000 per 10g it has become more expensive to put it into your portfolio?

A: For the last three-five years, the returns of gold are all more than 20%. But we have been advising clients to book profits and cut their exposure to gold at this point in time. The rally in gold will possibly get stemmed if the rupee starts strengthening, and it's probably at its weakest point or close to its weakest point right now. So that’s another worry that you have to keep in mind for rupee gold investors.

So we are recommending a cut in allocation because you have made a lot of profit. But typically look at 5-7% of your total net worth in gold.

Q: What would be the best investment if an investor has Rs 200,000 to invest every year?

A: It won’t be post office because the time horizon is very important. Also I think it’s critical to know where else he has invested. So we would try and look at the portfolio as a whole.

As financial planners, we try not to look at just at a piecemeal. So for somebody who has a lot of allocation in equity, that Rs 200,000 would all go into fixed income. For somebody who has no allocation to equity, we would actually take that money today and say keep it for equity, but do it in a staggered manner.

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