Constructing a wining portfolio for next five year

The market is trading at all-time high and portfolio of many investors might have recovered from their recent lows. Initially, the recovery was limited to a few frontline companies, however, now it has become widespread. In these conditions, if you want to make a portfolio with lumpsum investment, what should be its ideal allocation. It has been well-documented that asset allocation attains the pole position that determines the performance of any portfolio. This means that a mix of various assets such as equity, debt, cash etc in your portfolio plays a vital role in determining your returns.

The right portfolio for an investor is a function of his risk appetite, financial goals and investment horizon. Again, these factors are intertwined. So, if you have a longer investment horizon, you can take a higher risk.

Coming to the current case, where you want to invest for the next five year or more, a good part should go to equity. Depending upon your age and risk appetite, anywhere between 50-70 per cent should be invested in equity funds. The rest can be allocated to either debt or cash. The overall portfolio should consider your earlier investment too. For example, if you have already invested in debt instrument through the fixed deposit, consider it as part of your total debt exposure of, while calculating your asset allocation.

Even in equity investment, right now you should go for a major portion of around 60-70% in the large-cap dedicated fund and rest in either small-cap or in diversified equity funds. It is advisable now to take some exposure in international funds. This will help you spread your risks beyond the Indian economy. US-dedicated international funds are expected to perform better as the rupee is depreciating against the US dollar, which will add another layer of returns to your portfolio. In case of debt allocation, you can subscribe for medium-term debt fund that has a duration of five years or less. Once you have made the above allocations, keep track of the fund’s performance and keep rebalancing them as and when required.