There is much to look forward to about the future of the financial markets landscape in India. Household disposable income is on the rise, creating demand for avenues that generate high returns on invested wealth. AMFI data has shown that the number of Systematic Investment Plan (SIP) accounts added in the Jan-Jun 2018 period is up 60% compared with the same period last year. According to a recently released IMF Economic Outlook, Indian GDP growth will progressively increase over the medium term, in turn helping the Indian Wealth Management industry to grow yearly by 10-15% and more than doubling the number of Indian ultra-HNIs by FY22.
Regulators have responded positively to India’s promising growth outlook, permitting Indian investors access to a wide array of new financial products such as portfolio management schemes, fixed-income instruments and alternative investment funds. A higher level of market awareness has prompted savvy investors to seek greater balance in capital allocation. This is arguably a step in the right direction, in line with the fundamental principles of portfolio diversification.
What is portfolio diversification and why is it essential to Indian investors?
Portfolio diversification is the practice of allocating one’s investments across different asset classes, industries and/or geographies to minimize portfolio risk by reducing exposure to the underperformance of any one particular asset, industry and/or region.
Diversification is not necessarily aimed at maximizing portfolio returns; however, it does carry important implicit benefits for wealth preservation. Holding a basket of uncorrelated assets in one’s portfolio can limit losses in a cyclical bear market, and effectively safeguard an investor’s capital for subsequent bull market runs that present opportunities for enhanced returns. Portfolio diversification, while serving as a risk mitigation technique, also provides investors with freedom to gain exposure to a greater proportion of risky assets in their portfolios, while keeping overall portfolio risk low.
How can Indian investors create diversified portfolios?
Creating a well diversified portfolio isn’t rocket science. The cornerstone of sound portfolio diversification, simply enough, is discipline that must be exercised while formulating one’s asset allocation strategy. A well diversified investment portfolio must comprise a carefully curated selection of securities that are not highly correlated in terms of performance and are characterized by different risk profiles, to keep portfolio risk low.
Adjusting for their individual risk appetites, Indian investors can look to invest in combinations of securities belonging to the following asset classes:
• Exchange Traded Funds (ETFs)
• Equity Mutual Funds
• Corporate Bonds
• Debt Mutual Funds
• Fixed Deposits
• Precious Metals
• Property/Real Estate
How can MProfit help?
While the consistent increase in the number of investment products on the market is beneficial for portfolio diversification, it also creates an unprecedented challenge for Indian investors – how must one maintain and manage vast baskets of investment holdings?
After all, each asset class is governed by its own sets of laws, exchanges & intermediaries, and investors are expected to follow unique rules for tracking P/L, accounting & tax implications specific to each asset class. To add to the complexity, a well diversified portfolio requires consistent analysis and rebalancing, to adjust for changes in micro and macro environments. Now more than ever before, Indian investors are faced with the daunting task of tracking all of their investments in real-time.
This is where MProfit comes to the rescue. By providing an affordable & simple-to-use desktop (and soon-to-launch Cloud!) solution, MProfit allows users to manage investments across a large number of asset classes that seamlessly integrate with MProfit’s comprehensive accounting module.
One of MProfit’s differentiators is its proprietary import engine that can aggregate data from over 3,000+ sources across many disparate formats for key asset classes. We have saved our clients countless hours in painstaking manual import of trade & accounting data. In line with the new Grandfathering provision introduced by the 2018 Indian Budget, MProfit has also fully integrated & simplified the complex calculation of capital gains for all transactions (including corporate actions such as bonus, split, merger, de-merger).
MProfit truly empowers the Indian investment community to reap the benefits of an improved financial markets landscape by providing complete visibility into personal, family & client portfolios. With MProfit, individuals and investment professionals are able to diversify better and achieve higher returns in the long-term.