Quarterly Update Apr 2021

Our quarterly review of long-term expectation of returns and risk of asset classes relevant to Indian investors has made one big change – recognizing that Indian investors are warming up to international diversification. We reflect this by having a 20% allocation to the All Country World Equity Index (ACWI)  in our equity asset class. We choose the ACWI as it is the broadest and most diversified global equity index replicated by many low-cost exchange traded and index funds. Investors may take more specific international exposure – such as to the NASDAQ 100, US Technology, or Emerging Markets – which has its own specific return/risk characteristics. Using the ACWI as a benchmark allows for measurement of these more narrow International equity universes against a broad all world equity Index.

Our long term expectations reflect the change we have made to the equity allocation. By adding international diversification, long term return expectations in INR terms have increased and risk as measured by volatility has reduced slightly.

Table 1: Risk Return Long Term Expectations

April 2021
Asset Class Nominal Returns
(INR % pa)
Risk (Volatility)
(ann %)
Cash & Cash Equivalents 6.00 0.50
Debt 7.50 2.50
Mixed Assets 10.50 15.00
Equity 14.00 25.00
Commodities (Gold) 7.00 14.00

Note: Returns are pre-tax and ignore specific transaction costs. We use a broad sample of instruments accessible to retail investors such as mutual funds and ETFs to compute the pre-tax total returns. Each asset class is a collection of individual instruments. For instance, Cash and Cash Equivalents includes Fixed Deposits as well as Liquid Funds.  Data is over a long time period and we overlay historical returns with future expectations of the returns to arrive at the expectations. Our time horizon of expectation is 5-7 years.

These expectations of returns and risk serve as the basis for building the baseline desired zone of expected return and risk for different risk profiles in the qfinr app. Our approach generates over 3 million portfolios of varying allocations to the 5 asset classes from which we select risk-return trajectories for each of our 5 risk profiles over time. For a medium term investment time horizon (3-5 years), the asset allocation that investors could look at

Conservative Moderate Conservative Moderate Moderate Aggressive Aggressive
Cash & Cash Equivalents 0-5%
Debt 75-90% 60-80% 50-60% 30-50% 0-30%
Mixed Assets 5-10% 5-10% 5-10% 5-10% 0-5%
Equity 0-15% 15-30% 30-50% 40-75% 50-90%
Commodities (Gold) 5-10% 5-10% 5-10%

Note: These allocations are not based on any individual circumstances or needs. To determine the allocation for your specific circumstances, risk tolerance, time horizon please consult with your financial advisor.

In Qfinr, we show the returns and risk characteristics of the underlying baseline portfolios so that users can compare the performance against these synthetic portfolios. This is a powerful and intuitive way to regularly monitor your portfolio. You can also evaluate investment ideas on a standalone basis or as part of your portfolio.

Having realistic expectations about your portfolio – simple and convenient.

Qfinr powering intelligent investment decisions.