Investment Policy Statement
Client Name – Aman Bhawnani
Age – 25
Professional – Business Owner / Self-employed.
Investment Tenure – 12 Years (2035).
Risk Profiling
All equity
-
PMS/MF/
AIF/PE/V
C/DE
Growth Equity
Portfolio/
IPO/Pre-IPO/NP
S/ Direct
Equity/PMS if
2cr.
Balanced equity MF
Highly
Aggressive portfolio/NPS/ Debt
(14%+) Categories
Aggressive (12-
14%)
Debt categories/Index
Balanced (10-12%) Funds/NPS
Moderately Conservative (8-
10%)
FD, Debt/Liquid Funds/G-Secs/T-
Bill/ EPF/PPF
Conservative (6-8%)
As per the risk profiling and expectations of the client, he is more towards the aggressive side
and isn’t afraid to take risks. In fact, when it comes to safety of his investments versus returns, he
prioritises the latter.
Asset Classes and Portfolio Construction thesis:
- Aggressive Portfolio of Equity Mutual Funds – Small Cap, Mid Cap & Large Cap, Multi & Flexi
Cap, Focused Funds.
- As Aman has an aggressive risk profile, he could also look for IPO’s and Pre IPO investments.
- As the investment tenure is close, allocation to hybrid funds can be considered which offer better
downside protection than equity and is also taxed as equity and not debt, hence less tax
implications on the overall portfolio.
- When goal is 2-3 years away then can consider investing in debt MF’s, Bonds, considering the
outlook on equity markets at that point, investor confidence and risk appetite is different
and the interest rate cycle at that point in time.
Goal Planning & Analysis:
Goal – Down Payment for Home Loan
Amount – House price as per today’s market – 2cr.
Future value of home in 12 years assuming 6.5% inflation in housing prices – 4.25cr.
Aman plans to put a down payment of at least 25% in 2035 for his home loan hence his target
amount in 12 years becomes – 1.11cr.
Aman today can invest 25Lakhs in the form of lumpsum / SIP.
Asset Allocation Strategy:
Strategic asset allocation could be in place for Aman as it will aim to target his long-term goals and
create a portfolio of various assets to provide the targeted return whereas a Tactical asset
allocation strategy would benefit Aman in short run as TAA aims to take advantage in the markets
when one asset class favours over the others. A tactical asset allocation will help this way as
Historically, markets work in regimes:
- When the economy is in the expanding phase, growth style work well.
- During economic uncertainty, quality style works well.
- During economic downturn/bear markets, low volatility/low risk style works well.
- When there is a liquidity infused bull market, momentum style works well.
- When the economy is in a high interest rate cycle, value style works well.
By identifying certain regimes, tactical asset allocation can benefit the portfolio on a short-run
basis.
Decision – A strategic asset allocation will be in play for allocating to different asset classes while
a tactical asset allocation could be formed while certain regimes have been identified and agreed
upon initially. This will create a higher base for the investment portfolio and will have high chances
of outperforming the benchmark & peers.
Investment Allocation Decision -
As markets are at ATH, we suggest Aman to deploy 10Lakhs out of the 25Lakhs as a lumpsum
into the portfolio and rest can be done in the form of an SIP within 1-2 years’ time frame.
(Depending upon first 6 months performance and outlook).
Equity Allocation 1 2 3 Large 12.00
Large Cap 35 50 65 Mid 14.00
Mid Cap 32.5 25 17.5 Small 16.00
Small Cap 32.5 25 17.5
Risk Level (High to Low) 1 2 3
Growth Rate 13.95 13.5 13.05
(All figures are meant to be in
%)
Strategic Asset Allocation
Asset Allocation Mix
Large Cap Mid Cap Small Cap
Investment Rationale
The above recommendations provided are purely based on the client’s core portfolio (i.e., growth
portfolio) keeping aside his emergency corpus, certain liquidity needs in the future and where
medical & term insurance has been taken care of. However, we advise the client to re-calculate
the term amount every 7-10 years.
Since the time horizon of reaching the goal is 12 years from today and Aman’s risk appetite being
aggressive (focus on returns), the asset allocation mix has been constructed based on that. As the
tenure shortens and/or risk capability of the client changes…hybrid funds could be best suitable
for the client to provide better security with decent returns also if the client’s tax bracket is not on
the higher side debt mutual funds could also be suggested. (e.g., short term debt fund, credit risk
funds, medium term debt fund).
Review & Re-balance Strategy:
3 months – Overview of performance, economy & market outlook.
6 months – Portfolio review, performance metrics, economy & market outlook.
1 year – Re-visit decided strategy, portfolio performance review, re-balance if required, economy &
market outlook.
Also review during extra-ordinary market returns and bear market.
