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NSE Invest O Cast episode 16: Asset allocation - how to make the most of it

It’s important to get your asset allocation mix right. All of us have different risk appetites. Some of us track our investments very closely while others just glance at them from time to time and this podcast will help one to figure out one's ideal asset allocation mix.

March 29, 2019 / 12:04 PM IST

Hrishi K: Hello and welcome to another episode of NSE Presents: Invest – O- Cast, an exclusive investor podcast powered by Moneycontrol. My name is Hrishi K and I am your host on this podcast. It is all about getting your money to make better investments for you in the new financial year.

You know the other day I visited my bank after a really long time, and an executive over there got hold of me after I was done with my work. He tried to sell me a ULIP. For those who don’t know that’s a ‘Unit Linked Insurance Plan’. He told me it would be a great investment for my retirement.

I kept telling him that I didn’t want one but he was absolutely adamant that a man my age had to have a ULIP. He tried every trick in the book to get me to purchase one from him but I managed to walk away without another investment product in my asset portfolio.

The question remains now how many times have we bought an investment product because a) We are unaware of what we are getting into and b) Because someone has pressured us to? I remember friends of mine investing rashly in stocks without doing their due diligence or ignoring their financial planners’ advice. They wanted to make a quick buck to buy their first vehicles. They ended up losing a lot of money because most of the stocks they went bust.


It’s important to get your asset allocation mix right. All of us have different risk appetites. Some of us track our investments very closely while others just glance at them from time to time. And that’s where the major problem is. We don’t know the right asset allocation mix. Well, don’t worry. That’s exactly the topic we are going to address in today’s podcast: Asset Allocation: How to Make the Most of It.

National Stock Exchange (NSE) with the help of Invest-O-Cast (An exclusive investor podcast) powered by Moneycontrol is committed to breaking the limitations of geographical boundaries and reaching investors across the country.

In today’s episode, we are going to look at asset allocation, the right mix according to your profile, and how it should change as we get older and our goals change.

All of you regular listeners already know our guest for today. She gave us some very solid advice on savings a couple of podcasts back. Please welcome Lakshmi Iyer. Lakshmi’s the CIO - that’s Chief Investment Officer -- for Fixed Income and Head-Products at Kotak Mahindra Asset Management Company. She’s currently overlooking fixed income onshore assets of over Rs. 65,000 crore for Kotak. She is one of the smartest minds around in the realm of asset allocation and she is going to chat with me on getting the mix just right.

Hrishi K:  Welcome back to the show Lakshmi. We are so glad to have you back. How are you?

Iyer:  Hi Hrishi, thank you so much.

Hrishi K: Now here’s our first question to you. Why is asset allocation so important?

Iyer: I think asset allocation is like oxygen which is required for breathing how essential oxygen is for breathing I think asset allocation is that analogy explains it all. And why I say that is because 90% of the times returns can be attributed to the right asset allocation, everything else is behind and that is the reason the harnessing on the fact that if you are asset allocated well and in an appropriate manner that takes care of 90% of the way your portfolio is going to function. So there is no compromise on this and therefore I made it analogies to this breathing part without the oxygen.

Hrishi K:  So let’s look into what are the major assets that one can invest in? And how do we decide what assets we should put our money into?

Iyer: See I think there are 2 key asset classes which you can broadly diversify. One is the physical asset classes which is real estate and gold. Second is the financial asset class which is largely fixed income and equities. The problem in India is that physical asset classes are a pull products, they are like magnets whereas the financial asset class which are the true potential wealth creators are actually push products. My senses is that if you are asset allocating, bulk of your portfolio should actually be oriented towards the financial asset class which is equities and fixed income and then you need to have a small sprinkler in the form of real estate and gold.

Hrishi K:  So what role does risk appetite play in asset allocation? How do we know each one of us what is our risk appetite as an individual? Is there some sort of a test or something that we can go through to measure that?

Iyer: Not at all, I think typically there is this perception that you know the younger you are the more risk-taking ability you have while I don’t completely disagree with that but I think asset allocation should be more milestone linked and the risk that you can take will decide or will be a function of what is your immediate milestone. Just to give you a case in point I might be 25 and I have an immediate capital expenditure like buying a house or getting married within 3 years, so, therefore, I will allocate less towards the risky asset class. vis-à-vis someone who is 50 year old and who has no obligation for the next 10 years then he or she can afford to add a little bit more risk based on to the portfolio. So understanding the milestone therefore becomes very important while making an asset allocation.

Hrishi K: So now let’s look at the age aspect, how does asset allocation vary according to our age? I mean you see all these people saying that classify it according to three different age groups? Some people says one age group is till 30, the other is from 30-45 and then of course after 45 years of age do you agree with that? And if so then just lead us through that.

Iyer: Yes and no in terms of agreement. Why? Because you have a growth phase, then you have you know kind of a maturity phase and then you kind of stabilize this is your age profile, so when you are in the accumulating phase which is your peak prime years of your career, as I mentioned to you earlier the risk appetite is slightly higher and therefore your asset allocation towards assets could be slightly more exaggerated but as I said the caveat here is you might be young age but you might be say having a lot of capital expenditure in the very initial part, so there in you have to find out a very fine balance between your age and your immediate milestones but perfect example is you are young of age and you don’t have immediate milestones to be achieved say within 5-10 years then go for the kill have a higher risk appetite and plan it accordingly and therefore I said yes and no.

Hrishi K:  You are listening to National Stock Exchange (NSE) presents Invest – O- Cast (An exclusive investor podcast) Powered by MoneyControl we’re committed to break the limitations of geographical boundaries and reach investors across the country. We are talking to Lakshmi Iyer who’s giving us advice on asset allocation. Our next question for you Lakshmi. What are the questions we should ordinarily ask our financial planners when they come to us advise us on asset allocation?

Iyer: See the first and most important thing is that you have to listen to your financial planner. Once you listen to what he has to say then he has to in turn listen to you in terms of what kind of milestones you have, what kind of liabilities you have. I think he or she is the holistic guide to you or a “Saarathi” as I say which Arjuna had in terms of Krishna to be able to navigate you in terms of murky waters. After having said that I think the other most critical thing is to get consensus on what long term means because long term is very subjective. You know Greek to you is probably Latin to me. So I think it is very important that both the investor and the financial planner should reach a common ground on what long term is and then life is relatively sorted.

Hrishi K:  What’s a good interval, a time interval to keep going over our asset portfolio? For example, lots of people say if my short term goal is to buy a car and I am investing in mutual funds for that. What does one do after I buy that car? Does one continue to invest in the fund there is one asset class, so there in how often does one asses one’s asset portfolio?

Iyer: See ideally when you want to do the long term wealth creation like over 3-4 decades the philosophy should be ‘fill it, shut it and forget it’ but yes it is important to do course corrections, so I think an annual like we do an annual health check-up to make sure that all parts of the body are  functioning happening fine, I think it is good to do an annual check-up of your financial portfolio where you review your milestones, like if you had to buy a car or you have to invest in a property, if that milestone is achieved then how does my financial portfolio meander. I think that is where your financial advisors play a very critical role in molding this entire thing and the annual review of this portfolio unless there are huge event risks which happen either in the surroundings or with you which make you take course connections before that, once in a year I think is more than sufficient

Hrishi K: Well that was such a good podcast today. Lots of our financial planners are going to have to think very hard before they recommend something to us to invest in. Thanks to Lakshmi’s advice.

It’s now time for ‘Wisdom in the Bank’, the segment on this show a quick recap of all the points that Lakshmi Iyer has spoken about.

  • The key to great financial planning and wealth creation is asset allocation. It is a non-negotiable.

  • There are 2 key asset classes -- physical, which is gold and real estate, and financial, which is equities and fixed income. Though physical is like a magnet the bulk of your portfolio should be financial assets.

  • Risk appetite should be milestone based as opposed to age-based

  • It is obvious that if you are looking to buy house after 3 years, even if you are 21 you won’t have a huge risk appetite. But if you are 50 years old and you already have a house then perhaps you have larger risk appetite.

  • Define ‘long term’ with your financial planner. Your idea of your long terms should match with your financial planner’s long idea of long term.

  • Once a year review your asset if you go through an annual portfolio relook that’s good enough.

Lakshmi as with all good things, today’s show is also coming to an end. Thank you for your valuable words like I said it’s been a great podcast today. And your advice had been very very helpful.

Iyer:  Awesome thank you so much and here to a very happy financial planning to each one of you.

Hrishi K: Certainly, well the information that our listeners have got today will go a long way in helping them figure out their strategic asset allocation. I always feel I am going to be richer after expert comes on the show. They always give us such a different perspective and that helps a lot. Thanks you Lakshmi.

And that is a wrap on our show NSE presents Invest-o-cast! I am Hrishi K your host on the NSE Presents: Invest – O- Cast (An exclusive investor podcast) Powered by MoneyControl. To know more about our podcast, log on to and visit the podcast section. In case you would like us to address any of your investment queries on our show do write into us at: you can also reach out to us on Twitter @moneycontrolcom or Facebook, do remember to use #nseinvestocast #nseinvestocast 

Thank you for listening!

Disclaimer: The material on this show is for informational purposes only. Please consult a financial advisor before taking any financial decision.

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first published: Mar 29, 2019 09:58 am
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