How Should An Indian Retail Investor Allocate Assets?

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How Should An Indian Retail Investor Allocate Assets?
While India’s growth story is positive, investors should not succumb to events such as annual budget or volatility; instead, they should look for long-term systematic investments
OLM Desk - 05 April 2023

The world is currently passing through an uncertain phase when it comes to economic outlook. This is in stark contrast to the post pandemic phase when India Inc. experienced a growth resurgence as an aftermath of the liquidity infusion by the governments across the globe to boost consumption. However, the side effect of this came about in the form of unprecedented inflation which over time caused a surge in recessionary tendencies across various economies. Following this development, global central banks, including the RBI, has initiated various measures to suck off this excess liquidity. While these measures may cause short term pain, over the long term, they tend to be beneficial for the overall economy. Given this backdrop of tumultuous global market scenario, how should a retail investor go about allocating assets becomes the obvious question.

Retail investors, today, have a gamut of investing options to diversify their portfolios across different asset classes. Judicious asset allocation is nonetheless pertinent for ensuring a reasonable rate of return on investment while mitigating risk as well. To reach this risk-return trade-off, the risk appetite, investment horizon, and investor’s financial goals play a crucial role. As a rule of thumb, young investors with a long-term investment horizon should ideally allocate a higher proportion of their wealth to equities.

We believe, the long-term outlook of Indian equities is a positive one. The Indian retail investor should feel confident given the strong macroeconomic fundamentals and the optimistic growth outlook presented by the Economic Survey 2022-23. Driven by the vision of Aatma Nirbharta (self-reliance), the country has robust growth prospects, thanks to the visionary initiatives such as the Make in India, green growth, production-linked incentives, promoting electric vehicles, digitization, and harnessing an extravagant start-up ecosystem.

Keeping up this path, in Budget 2023 as well, the Government increased capital outlay by a staggering 33% to boost private consumption and infrastructural development. As a result of all these measures, the Indian economy has been resilient and is identified as the fastest-growing emerging economies globally. Moreover, India’s GDP has been pegged at 7% for FY 2023 despite the slowdown caused by the pandemic and geopolitical concerns.

It is thus worthwhile for an investor to invest in India’s growth story via equities. But while at it, retail investors should exercise caution and make judicious asset allocation decision as a means to maximize wealth creation. Here, there are three things an investor should always remember

(1) Don’t put all your eggs in the same basket. Adopt a well-diversified asset allocation strategy comprising of equity, bonds, commodities (gold, silver) and real estate

(2) Stick to investing fundamentals. Investment decisions should not be based on events such as the annual budget, nor should intermittent volatility bother a long-term investor

(3) As in life, there is no free lunch in finance as well. Higher returns come with higher risk; so invest cautiously. Systematically scale up your portfolio at regular intervals

On the other hand, for those with a shorter investment horizon or lower risk appetite, debt is the preferred investment choice. Amidst the global market headwinds, fixed-income securities emerge as an attractive investment avenue. However, as per Budget 2023, returns from market-linked debentures will be treated as short-term capital gains. Nonetheless, investing in bonds and other fixed-income securities, especially debt mutual funds are lucrative given the attractive yield available. Investment in equity and debt mutual funds through SIP/STP route will therefore be a smart choice at this juncture. An optimum mix of debt and equity is suggested for investors having moderate risk-return expectations.

To conclude, given the long term prospects of the Indian economy, the optimal way to make gains from the growth story is via the Indian equity and debt markets. It is better to invest in a systematic manner via SIP to meet various financial goals, through the mutual fund of one’s choice. Being consistent and disciplined matters along this investment journey.


The views are personal and are not part of the Outlook Money editorial Feature.

Mohit Bansal, Amul Malhotra, Co- Founder, Profit culture Investment Services Pvt. Ltd.

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