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Fixed asset allocation a suitable strategy for orthodox investors, experts say

While active investors understand the significance of alertness in order to real gains, orthodox and lazy investors too can earn decently by applying strategies such as fixed asset allocation.

October 29, 2020 / 11:09 AM IST

A significant chunk of an orthodox investor's portfolio should go to fixed-income securities like government bonds and fixed deposits, said experts. As far as equities are concerned, they should rely on fundamentally strong stocks.

A diversified portfolio, regular scrutiny of asset allocations and awareness regarding the current trends of the market are some of the key attributes of a successful investor.

While active investors understand the significance of alertness in order to real gains, orthodox and lazy investors too can earn decently by applying strategies such as fixed asset allocation.

"An orthodox and conservative investor, especially at the current environment wherein equities rallied a lot while economic conditions remain weak, should park 40 percent of the wealth in safe fixed-income securities like government bonds and fixed deposits in strong banks," said G Chokkalingam, Founder, Equinomics Research and Advisory.

"From remaining cash, one can invest 10 percent in gold or gold ETF and balance 50 percent in fundamentally sound equities," Chokkalingam said.


Chokkalingam underscored that within the equity asset class, conservative investors can allocate a maximum of one-third of a total equity portfolio to high dividend yield stocks.

However, investing beyond one-third of equity allocation into dividend yield stocks is not advisable at this stage as the domestic equity markets at the current juncture is dominated by new investors, a majority of

who seem to be chasing overvalued stocks which are in momentum, Chokkalingam said.

While choosing the high dividend yield stocks, apart from past dividend records, investors should look at cash left in the balance sheets and also the durability of the business prospects of those companies.

Orthodox investors tend to find real estate attractive but this asset class does not look like an apt investment area at the current juncture.

"Till the coronavirus pandemic gets over successfully, it is better to avoid investing incrementally in real estate as inventories to sales remain at a highly elevated level for most real estate companies, pointing towards the possibility of a significant correction in real estate prices," said Chokkalingam.

Jyoti Roy- DVP- Equity Strategist, Angel Broking suggests an orthodox investor's portfolio may have 50 percent allocation to equities and 30 percent allocation to fixed income.

He also recommends a 10 percent allocation to gold while the remaining 10 percent can be invested in alternate investments like real estate.

Furthermore, Roy advises 30 percent of the equity allocation can be invested in direct equities through exposure to large-cap bluechip companies while 50 percent should be allocated to multi-cap mutual funds.

He said the remaining 20 percent should be allocated to well established mid-cap oriented funds which will help improve the return profile for the investor.

On similar lines, Shobhit Mathur, Senior Director, Kotak Investment Advisors recommends the allocation between equity and fixed income for a conservative investor could be 30:70.

"We do suggest 5 percent of portfolio allocation to gold and up to 15 percent of equity allocation into global equities as a diversification strategy. Within Equities as well, we suggest 30-35 percent allocation through passive ETF strategies that have delivered better returns for investors," Mathur said.

Experts point out that the asset allocation should only be driven by the risk profile of the client.

"The equity and fixed income allocation in the portfolio of an orthodox client should be a combination of his willingness to take the risk and his ability to take risk after taking into consideration the time horizon for investment," said Jharna Agarwal, Head, Anand Rathi Preferred.

In her view, gold should have an allocation of 5-10 percent of the portfolio, depending on the risk profile (higher allocation for conservative investors) as it is an effective hedge against inflation and has a benign performance in volatile equity markets.

Low-risk investors should follow the philosophy of asset allocation with higher fixed income and residual allocation to growth assets like equities.

A conservative investor should have a long -term horizon as the 10-year rolling return for Nifty outperforms any other asset class.

"Conservative investors with a long-term horizon may consider doing an SWP from large-cap oriented mutual funds for about 20-40 percent of their overall portfolio. This strategy provides the dual benefits of regular cash inflows and principal appreciation," Agarwal said.

Disclaimer: The views and investment tips expressed by investment experts on are their own and not that of the website or its management. advises users to check with certified experts before taking any investment decisions.
Nishant Kumar
Tags: #markets
first published: Oct 29, 2020 11:09 am
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