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Note On NSP Model Portfolio
Note On NSP Model Portfolio
Objective: To understand the role of NSP in your portfolio, even if you are a long-
only investor.
Features of NSPs:
Having NSP in your portfolio can reduce risk and increase the probability of
achieving desired returns.
NSPs are designed to deliver equity-like returns of 12-14% p.a. at a 4%-6% p.a.
market movement. It also provides principal protection up to a certain fall in NIFTY.
In effect, NSP can act as a Plan B to Equity.
Due to NSPs’ inherent risk management feature of having a much lower risk than
NIFTY, it is also perceived to deliver returns lesser than NIFTY.
But is this perception real?
As can be seen, Rs. 1Cr. Invested 10.7 years back in NSPs would give Rs. 5.44Cr. at
Maturity vis -a–vis NIFTY, giving Rs. 3.3Cr. Thereby delivering an Absolute Alpha of
2.14Cr. Considering the 10% Tax difference between NSP and Nifty, the Alpha
value comes to a staggering 1.48Cr. (148%)
Risk to long-term investing and mitigation
As investors, we are long-term, but during a crisis, we tend to deviate from it. For example, If
the market experiences a 30% drop in a short period, with an expectation of further decline,
then in such a scenario, investors may exit the market, causing irreparable damage.
For example, During the COVID crisis (March 2020), if an investor with a Rs. 1 crore investment
had witnessed a 26% fall in his portfolio and feared a further fall in the market, the probability
of him exiting Equity would increase significantly.
Let's see how the infusion of NSPs as part of the AR Sample Portfolio gave courage to investors
during the COVID crisis.
In March 2020, when NIFTY was down by 26%, the Anand Rathi Sample Portfolio was
down by 12%. This was because NSP, which accounted for 35% of the portfolio, cushioned
the fall in value.
As a result, NSPs gave courage to Anand Rathi Wealth clients during the COVID crisis.
Therefore, NSPs would have reduced the probability of an investor exiting his Equity
investment and traversing the COVID crisis.
To put it in perspective – the table below shows the difference in behavior between ARWL
clients and others.
The above point highlights that back in FY20-21, the entire Equity Mutual Funds industry sold
over Rs. 1.2 lakh crores of Equity Mutual Funds (Excluding SIP inflows), Anand Rathi Wealth
clients stayed the path and, instead, were net buyers.
Conclusion:
Investors have not lost out on returns by including NSPs in their portfolios. In fact,
over a 10-year period, they have generated an alpha over Nifty of 214%.
Having NSP can act as a shock absorber in traversing a crisis like we saw in the
COVID-19 pandemic.
Statistically a portfolio with 35% of allocations in NSP has more predictability and
probability to achieve the targeted return.
Hence as a first step, having 15% allocation, is a move in the direction of making a
portfolio more predictable and increases the probability to achieve targeted
returns.
Details:- The information provided is this communication is reproduction of factual details. No part of
information provided herein should be construed as investment advice by ARWL and/or its employee.
Investor/Client must make their own investment decisions based on their own specific investment
objectives and financial position. This communication does not constitute an offer or solicitation for
the purchase or sale of any financial instrument/security