Investors had an expectation of favourable announcements in the Budget 2018—reshuffling of tax slabs, additional tax exemptions, and more sops for the industry.

But the Budget turned out to be a rural-centric one that took a tough stance against tax-non-compliance. It brought long-term gains made on equity shares under the purview of capital gains tax.

Sharp market swings

Data as on April 27, 2018?
(Source: BSE)

Investor sentiment changed quickly and the key indices frequently started touching lows. This story continued for two months—February and March. On March 23, 2018, BSE Sensex closed at 32,597—thereby falling 10% from the top it made in January.

Come April, Bulls took the Bears head-on and recovered majority of the ground they lost earlier.

This topsy-turvy market movement might continue indefinitely, but what are the chances that this will benefit you?

Creating an all-weather portfolio is challenging. So, you need to design your portfolio of equity-oriented mutual fund schemes in such a way that it makes the most of market volatility.

Have you heard of the ‘core and satellite’ strategy of investing?

What’s so unique about this?

Good question.

This 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!

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 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 investment portfolio. 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. 

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.

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 to deliver the benefits of asset allocation and offer the potential to outperform the market. The satellite portfolio provides the opportunity to support the core by taking active calls determined by extensive research.

Now let’s see a few rules for creating 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 5 years

• It should be diversified across investment style and fund management

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

• They should 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 3 market cycles of outperformance 

• The portfolio should contain an adequate number of schemes in the right proportion. In short, it should carry the most optimum allocation to each scheme and investment style

• Does not exceed the limit of 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.

Are you wondering how difficult it would be for you to select mutual fund schemes from various categories?

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

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! 

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