“Asset allocation determines as much as 90% of the long-term returns of an investor’s portfolio,” said Misbah Baxamusa, CEO of NJ Wealth.
Maintaining asset allocation is a continuous process and should be carried out whenever there is a sharp rise in one of the asset classes, he added.
Over the last year, the Nifty 50 moved up by 13.64%, while the Nifty Midcap 150 rose 35.91% and the Nifty Smallcap 250 rose 39.03%. This rally in stocks would have increased investors’ allocation to equity and reduced it to debt and gold.
“It is a time to review and rebalance investor portfolios,” said Nasser Salim, managing partner at Flexi Capital LLP, a boutique investment services firm.
Financial planners believe investors should carry out this exercise once every six months or a year. Conservative retail investors could have a 65% allocation to equities, a 25% allocation to fixed income, and a 10% allocation to gold. It is time to come back to this allocation, they say.
“Investors with such higher equity allocation to mid- and small-cap funds could book some profits and reallocate money to other assets such as fixed income and gold,” said Nirav Karkera, head of research at Fisdom.Wealth managers believe investors could allocate to fixed income using debt funds as rates are attractive and there is a chance that investors could earn a capital appreciation in the coming year. “There is a chance of a rate cut in the next 6-9 months, giving investors the opportunity to earn a capital appreciation by entering medium to long duration bond funds. Investors could make a return of 10-11% on fixed-income portfolios over the next 12-15 months,” Salim of Flexi Capital said.
Investors could also maintain a 10% allocation to gold, given the uncertain geopolitical situation and the yellow metal’s ability to act as a hedge against inflation. Investors could allocate to gold through sovereign gold bonds (SGB) whose issue opens next week from December 18-22. “The government pays an additional 2.5% interest on gold bonds, there is no expense ratio to be paid, and capital gains are tax-free on maturity, making it one of the best ways to hold gold,” said Anup Bhaiya, CEO of Money Honey Financial Services.