Quarterly Update Jun 2021

Our quarterly review of long-term expectation of returns and risk of asset classes relevant to Indian investors for June 2021 remains the same as our April 2021. Globally, the year so far has seen optimism about growth and fear of inflation rise together, and then slide back again together. Economic data remains significantly impacted by the pandemic and predicting the economic data is now almost a matter of luck rather than skill. Worse, interpreting the data and its implications seems like a lot of noise with little real substance. While risks are elevated in the short-medium term, we do not anticipate that the overall long term scenario has changed significantly to warrant a change .We continue to monitor inflation, economic sentiment and factors. The long term effects of the pandemic on asset prices is complex and with a web-like interplay between economic variables (including secondary effects of policy decisions).

We believe that the current data has a lot of noise – driven by expectations as well as policy measures with little certainty of long term outcomes. So we stay our course.

Table 1: Risk Return Long Term Expectations

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

Table 2 : Asset Allocation Ranges

	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.