A four-pronged asset allocation strategy to gain maximum returns

Often investors get swayed in their decision-making by the volatility in various asset classes. Instead,the right approach would be to have a prudent asset allocation strategy to tackle any uncertainty. The investment trend today continues to be plagued by weak sentiment on the back of higher cost of capital,policy paralysis at the Centre and weak macro numbers. The GDP growth in the March quarter slipped to 5.3% and projections for the first quarter of the current fiscal too range between 5% and 5.5%. A report by Religare Macquarie Private Wealth has chalked out an asset allocation plan for investors,keeping in mind the volatility in the stockmarkets. It has four broad themes — protection,growth,aspirational and insurance.

On protection,it suggests debt-related products where one can lock-in yields through fixed maturity plans of mutual funds. One can also look at ultra-short term,short-term and liquid bond funds,and even capital-protected debt funds and non-convertible debentures. However,an investor should consider NCDs only if he intends to hold them till maturity because selling them on the stock exchange within 12 months of allotment will lead to short-term capital gains/losses. Beyond that period,long-term gains/losses will apply. While STCG is taxed at normal rates,LTCG on sale of NCDs on the stock exchange is always taxable at 10.30% (including education cess of 3%),without indexation.

The second theme is growth where one can look at direct equities. It suggests consolidation in long-only stock portfolios with a time horizon of 24-36 months and a bottom-up focus on stocks with strong earnings certainty to maximise opportunity for potential out-performance over the medium term. One can take the MF route for large cap and diversified equity funds and even flexible systematic transfer plans and systematic investment plans in equity MFs with a time horizon of 2-3 years.

Under the growth theme,one can look at structured products: market-linked structured products and even customised structured products. The third theme is aspirational— where one can look at venture capital funding or private equity. Funds that have strategies based on asset allocation views and trading opportunities to both hedge equity and bond volatility and the advantage of market mispricing,can be a good option. The last is insurance where unit-linked plans via the online route are available with zero premium allocation charges.