optimization

1. How to build Efficient Portfolios
using Mutual Funds?
Speaker:
Chirag Mehta, Senior Fund Manager, Alternative Investments
August , 2021

2. Determine
your Financial
Goals, Risk
Tolerance &
Investment
Horizon
Determine
your Asset
Allocation
Choose the
right Mutual
Fund
category
Within the
category, pick
the right funds
Monitor &
Rebalance
regularly

3. Equities or Fixed Income or Gold?
How do you pick the winning asset class?

4. Equities are Indispensable in order to beat Inflation
Consumer Basket 1990* 2000 2010 2015 2020 CAGR
TOTAL SPENDING PER ANNUM 23,759 68,923 151,279 280,064 427,619 10.1%
Price of gold, INR/10 grams 3,409 4,528 18,268 26,335 50,104 9.4%
Units ( Grams) of gold to consume my basket 70 152 83 106 85
BSE SENSEX 730 4,659 15,585 26,557 47,751 14.9%
Units of BSE-30 Index to consume my basket 33 15 10 11 9
Fixed Deposit Basket Index Value (Value of initial
investment Jan 1, 1990 =1000) (SBI 1 Year Deposit
Rate)*
1,064 2,220 3,550 4,628 5,814 6.0%
Units of FD Basket to consume my basket 22 31 43 61 73
Past performance may or may not sustained in future
Quarterly compounding and Tax rate on Fixed Deposit assumed to be 30%

5. 5
2020: A Reminder On Virtues Of Asset Allocation
Past performance may or may not sustained in future

6. There have been years when equity markets had a brilliant run, years when only bonds were
dependable, and years when gold shined the brightest, and these periods did not typically overlap
Past performance may or may not sustained in future
The chart ranks the best to worst performing indexes per calendar year from top to bottom
*Data as of July 2021
Past performance may or may not be sustained in future.
Based on S&P BSE Sensex; Domestic Gold prices and
CRISIL Composite Bond Fund Index
Source: Bloomberg
Imagine someone holding an all equity
portfolio in 2008, or holding none in the
equity rally that followed?
6
Asset Allocation Matters...
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021*
Sensex
49%
Sensex
49%
Gold
26%
Sensex
83%
Gold
23%
Gold
32%
Sensex
28%
Sensex
11%
Sensex
32%
Bonds
9%
Bonds
13%
Sensex
30%
Gold
8%
Gold
16%
Gold
28%
Sensex
11%
Gold
20%
Gold
16%
Bonds
9%
Gold
24%
Sensex
19%
Bonds
7%
Gold
12%
Bonds
4%
Bonds
14%
Sensex
-4%
Gold
11%
Gold
5%
Sensex
7%
Sensex
14%
Sensex
17%
Bonds
1%
Bonds
4%
Bonds
7%
Sensex
-52%
Bonds
4%
Bonds
5%
Sensex
-24%
Bonds
9%
Gold
-5%
Gold
-8%
Gold
-7%
Sensex
3%
Bonds
5%
Bonds
6%
Bonds
11%
Bonds
12%
Gold
-3%

7. 7
Each Asset Serves a Role in a Portfolio Context
EQUITY
Long term
growth
Regular
income and
stability
GOLD
Diversifies
against macro
events and a
store of value
FIXED
INCOME

8. Combine Asset Classes for better Risk Adjusted Returns
One asset’s down cycle is balanced by another asset’s up cycle
Risk-Return Equity +Debt +Gold * Equity + Debt ** Equity Debt Gold
CAGR 11.13% 11.13% 12.80% 7.18% 11.45%
Annualized SD 9.37% 13.45% 22.02% 3.27% 17.34%
Maximum Drawdown 0.21 0.36 0.56 0.06 0.25
Sharpe Ratio 0.524 0.365 0.299 0.293 0.302
The most diversified strategy yields similar
returns with the lower volatility, compared to
a pure equity strategy
8
Time frame is November 2004 to July 2021. The period is taken from 2004 since the asset allocation weights are
calculated based on normalizing the historical monthly equity and debt indicators. Given the normalization time
frame used in the strategy, data availability for certain parameters beyond the time frame analyzed was a
constraint. Compiled by Quantum AMC
*Equity-Debt-Gold in ratio of 40-40-20. **Equity-Debt allocated in 60-40 range
Based on Sensex Index, Crisil Composite Bond Fund Index, and Domestic Gold Prices
Note: Past performance may or may not be sustained in the future

9. A Simple Asset Allocation Strategy to Deal with Market Cycles

10. Using Hybrid funds for asset allocation

11. Hybrid Fund Mandates Vary Widely
Investors need to reconcile what suits their Risk – Return profile
Type Allocation to Equity
Allocation to fixed
income
Allocation to gold
Aggressive hybrid funds 65-80 20-35 0
Balanced hybrid funds 40-60 40-60 0
Conservative hybrid
funds
10-25 75-90 0
Dynamic Asset
allocation/Balanced
Advantage funds
0-100 0-100 0
Multi Asset allocation
funds
10-80 10-80 10-80

12. The Missing Element .. Gold!
Gold is an effective portfolio diversifier
Type
Allocation to
Equity
Allocation to
fixed income
Allocation to
gold
Aggressive
hybrid funds
Balanced
hybrid funds
Conservative
hybrid funds
Dynamic Asset
allocation/Bala
nced
Advantage
funds
Multi Asset
allocation
funds
Risk-Return Equity +Debt +Gold * Equity + Debt **
CAGR 11.13% 11.13%
Annualized SD 9.37% 13.45%
Maximum Drawdown 0.21% 0.36%
Sharpe Ratio 0.524 0.365
Time frame is November 2004 to July 2021. The period is taken from 2004 since the asset
allocation weights are calculated based on normalizing the historical monthly equity and
debt indicators. Given the normalization time frame used in the strategy, data availability for
certain parameters beyond the time frame analyzed was a constraint. Compiled by
Quantum AMC
*Equity-Debt-Gold in ratio of 40-40-20. **Equity-Debt allocated in 60-40 range. Based on
Sensex Index, Crisil Composite Bond Fund Index, and Domestic Gold Prices
Note: Past performance may or may not be sustained in the future

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