Dal-chaval, roti-sabji is the ‘core’ of Indian food. You might be a vegetarian, non-vegetarian, or a flexitarian, but how often has your meal not included these?

Of course, any Thali is incomplete without these ‘core’ food options.

While you enjoy your meal, shouldn’t you avoid overeating? Even if you have a sweet tooth, gorging on Indian desserts can be injurious to health in the long run, just as eating food that’s drenched in oil or overly salted can be.

The principles that hold true for your physical health, holds true for your financial health as well.

In fact, your portfolio should resemble a balanced Thali.

(Image source: thebluediamondgallery.com)

Just like your body needs to have different food groups in moderation, you can’t expect the same investment portfolio to satisfy all your financial needs throughout the investment time-horizon.

Here’s the key to sound financial health --- Investing more in the ‘core’ investment options and allocating to ‘satellite’ options only in moderation is advisable.

[Read: How Well Do You Know The Health Of Your Mutual Fund Portfolio? You Will Be Shocked!] 

Your portfolio needs to be designed in a way where equity-oriented mutual fund schemes make the most of market volatility.

What’s that?

Market volatility, in simple terms, is defined by the fluctuations in stock prices which cause you to gain or lose money.

[Read: Markets Will Remain Volatile, But Here’s How A Strategic Portfolio Comes To the Rescue] 

The ‘core and satellite’ strategy aims to get the best of both worlds, that is, short-term high-rewarding opportunities and long-term steady-return investing.

And the good thing is… it works effectively even during volatile times.

The term “core” applies to the more stable, long-term holdings of the portfolio; while the term “satellite” applies to the strategic portion that would help push up the overall returns of the portfolio, across market conditions.

Below are the 6 benefits of following the core and satellite approach:

1. Facilitates optimal diversification;

2. Reduces the risk to your portfolio;

3. Enables you to benefit from a variety of investment strategies;

4. Aims to create wealth, cushioning the downside;

5. Offers the potential to outperform the market; and

6. Reduces the need for constant churning

The ‘Core and satellite’ investing is a time-tested strategic way to structure and/or restructure your investmentportfolio.

As far as your mutual fund investments  are concerned, the ‘core portfolio’ should consist of large-cap, multi-cap, and value style funds ; while the ‘satellite portfolio’ should include funds from the mid-and-small cap category and opportunities style funds. 

In other words, large-cap, multi-cap, and value style funds play the role of dal-chaval and roti-sabji, in your portfolio and mid and small cap funds are just like pickles, desserts, and papads. They can spice up and sweeten the returns on your portfolio and can damage it as well if you go overboard with them.

PersonalFN’s research states that 60 percent of the portfolio shall be reserved for Core mutual funds and the rest 40 percent for the Satellite mutual funds.

But what matters the most is the art of astutely structuring the portfolio by assigning weightages to each category of mutual funds and the schemes picked for the portfolio.

Moreover, with changes in market outlook, the allocation/weightage to each of the schemes, especially in the satellite portfolio, needs to change.

So, here a few rules to create a strategic portfolio -

• The selected funds should be amongst top scorers in their respective categories. The portfolio should be built with a time horizon of at least five years

• It should be diversified across investment style and fund management

• Each fund should be true to its investment style and mandate

• These must be managed by experienced and competent fund managers and belong to fund houses that have well-defined investment systems and processes in place

• Each fund should have seen at least three market cycles of outstanding performance 

• The portfolio should carry the most optimum allocation to each scheme and investment style

• Not exceeding the limit of six-seven mutual funds in your portfolio.

• No two schemes will be managed by the same fund manager

• Not more than two schemes from the same fund house will be included in the portfolio.

Please remember, constructing a portfolio with a stable core of long-term investments and a periphery of more specialist or shorter-term holdings can help you clock optimal returns that outperform the market.

Wondering how you can own a mutual fund portfolio based on the “core and satellite” approach?

PersonalFN offers you a great opportunity, if you’re looking for “high investment gains at relatively moderate risk” here’s PersonalFN’s exclusive report: The Strategic Funds Portfolio For 2025 (2018 Edition), based on the ‘core and satellite’ approach to investing.

In this report, PersonalFN will provide you with a readymade portfolio of its top equity mutual funds schemes for 2025 that have the ability to generate lucrative returns over the long term.

PersonalFN’s “The Strategic Funds Portfolio for 2025” is geared to potentially multiply your wealth in the years to come. Subscribe now! 

Happy Investing!

Must Read: Best Mutual Funds to Invest In 2018? Read This First!

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