Quarterly Update September 2021

Our quarterly review of long-term expectation of returns and risk of asset classes relevant to Indian investors for September 2021 remains the same as our June 2021 update. There are signs that the global economy is moving forward from the pandemic. Vaccinations have been a big game changer. Covid mutation will continue, and so will mankind’s medical response.  While pandemic related risks are reducing in the short-medium term, we do not anticipate that the overall long term scenario has changed significantly to warrant a change. Risks of inflation, supply chain transformation, behavioral changes leading to structural changes in demand, income inequality and how to drain excess liquidity are all factors we track. 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 continues to have a lot of noise – driven by expectations as well as policy measures with little certainty of long term outcomes. So, despite the performance of the market as well as many predictions of short-term market crashes, we stay on course for our long term expectations of returns and risk.

Table 1: Risk Return Long Term Expectation

 September 2021

June 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: 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.  An investor cannot invest directly in the asset class. They are shown for illustrative purposes only and do not represent the performance of any specific investment. Assert class returns do not include any expenses, fees, transaction costs or sales charges, which would lower performance. For illustrative purposes only. Past performance is no guarantee of future results. Real results may vary.

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 expected returns and risk characteristics of the underlying baseline portfolios so that users can compare the performance against these synthetic portfolios as an input for their discussions with their financial advisors. 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.

Important Disclaimer

Qfinr is not a financial product advisory service and does not provide any financial product advice specific to your circumstances. We provide numeric information only based on data entered by the user and/or data otherwise available to us and the output presented is derived from that information as a result of calculations using our methodology. This output, in itself, is not a recommendation nor is it a statement of opinion. It is not a solicitation or attempt to effect transactions in securities or the rendering of personalized investment advice. As such, the information should not be construed as being personalised financial, investment or professional advice, nor should be deemed to constitute as an offer or provision of such advice.