How to make a Balanced Investment Portfolio: Balancing Equity and Debt for Wealth Creation

Should you invest in the stock market? Should you invest in mutual funds? Or should you invest in gold, real estate, PPF, FD, etc.? How to balance the allocation between equity and debt? What is the right strategy to invest money? Should you invest when the markets are at an all-time high or should you wait for the fall?

This is the biggest dilemma of every investor in the country. Well, honestly speaking, investment is not a science, so there is no fixed formula, but investing is more of an art that requires a good strategy to balance the investment.

On one side, a right strategy can help you create wealth; on another side, a wrong strategy can result in losses.

There is a famous saying that when it comes to investment, do not keep all your eggs in a single basket. Basically, it means you should diversify your investment.

But many people find it difficult to make the right mix of investment for diversification, so I want to share my investment strategy and that would give you a good understanding of diversification.

When I started my investment journey, I also had all these doubts about the right strategy to invest my money. Over the past few years, I have done extensive research to understand the right strategy to balance my portfolio.

But before you proceed, I want to clarify that I am a long-term grovel investor. I have coined this term myself as it is a combination of growth plus value investing. I also don't invest in penny stocks as I believe in investing in fundamentally strong companies, and I am happy with my decent return with those good stocks. I also don't invest in gold, although I feel that 5% can be kept in gold, but currently, the price looks overvalued, so I haven't invested in gold. And when I say gold, I mean digital gold. Physical gold is a big No; it is mainly due to high making charges in physical gold. I don't invest in FD as the rates are way too low, and after-tax returns are even below the inflation rate.

I also don't have a lot of money to invest in real estate. In the future, When I earn more, I would like to have some exposure to real estate.

Alright, now let me share my investment strategy.

First of all, I have divided my investment amount into two parts: equity and debt. I periodically review my portfolio to decide the right allocation strategy of money within equity and debt. For example, in the current situation, I have kept an allocation of 50/50 in equity and debt.

Now within equity, I have divided my investment into stock and equity mutual fund. You can say 50/50 in both.

Within stock, I have two portfolios. One is the core portfolio and another is the swing portfolio. Core portfolios have the best of the best stock that I do not intend to sell. Having said this, I keep an eye on them to avoid a Yes Bank-like situation. It includes companies like HDFC Bank.

Next is the swing portfolio, which is more of a swing trading where I identify the hot sectors and keep investment based on the latest trends.

For example, IT, pharma, and chemical are the hot sectors currently. Overall, I try to keep 50/50 in both core and swing portfolios. In terms of market cap, I like to keep 50 to 60% in large cap and the rest in mid and small cap stocks.

Now within equity mutual fund, I have two sub-categories: active fund and passive fund. Active funds are the funds managed actively by mutual fund houses. I prefer to have mutual funds with multi-cap allocation across large, mid, and small cap. This gives me a good balance of stability and growth. I also like to keep US-based funds in the portfolio.

Within passive funds, I like to have equal exposure to Nifty 50 and Nifty Next 50 based index funds. It can also include ETFs. I strongly believe that the future of mutual funds is index funds with very low cost, and as the Indian market matures, it would be very difficult for active funds to beat the passive funds. Currently, I keep both.

Next category is debt. Now this is a very tricky category. It is because it is difficult to track the bond market. If you keep a track of the market, you would know the Franklin Templeton fiasco in the past.

However, if you know how to select the right debt fund, you will never face any problem. In fact, it is better than FD in terms of return and tax saving, but only if you know how to select the right debt mutual fund. You have got many categories in debt funds.

For example, you have liquid funds, money market funds, ultra-short-term funds, short-duration funds, medium-duration funds, long-duration funds, gilt funds, banking and PSU debt funds, corporate bond funds, etc.

Each category has different risk versus return potential. I prefer to invest in the lowest debt mutual fund as for high risk, I already have equities. Within low risk, I prefer to keep some money in liquid funds for emergency purposes. Apart from this, I like to keep money in banking and PSU debt funds, money market funds, and corporate bond funds.

However, I am very careful with my debt fund selection, and I check the risk profile of each debt mutual fund as well as the portfolio to ensure that the debt mutual fund invests in good quality bonds. So this is my overall strategy.

If I summarize, the first breakup is between equity and debt. Then within equity, it includes stock and mutual fund. Within stock, it includes the core portfolio and swing portfolio. Within equity mutual funds, it includes active and passive mutual funds. And finally, within debt mutual funds, it includes liquid funds, banking and PSU funds, money market funds, etc.

Conclusion:

Embarking on your investment journey can be daunting, but with the right strategy, you can create substantial wealth. As a long-term investor, I focus on a balanced portfolio, avoiding high-risk trades and investing in fundamentally strong companies and funds.

Whether you prefer stocks, mutual funds, or other investment vehicles, the essential factor is to stay informed and make decisions that align with your financial goals.

Start investing today and pave the way for a secure financial future.

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