Disciplined Dynamism

Your partners for

nurturing wealth
for a lifetime
Life Goals
• Maintain current lifestyle
• Upward bias owing to kids

• Upgrade current lifestyle / standard of living

• Better rented house
• Car
• Foreign Trips

• Meet Specific goals

• Own House
• Kids’ foreign education / marriage

• Achieve financial independence and gain control over one’s time 2/18
 Why Invest
Inherently volatile / unpredictable
Current Income
(Business / Salary) consumption

Conscious
Savings
Forcedpost Upgrades to
savings Current lifestyle Specific goals FIRE
expenses
savings (postponing lifestyle
(PF) consumption)
maintain enable achieve ensure

Investible Surplus Investment Income

• Tomorrow’s consumption to be better in quality as it will be linked to higher income level and hence
higher standard of living
• Investment Income’s job is to contribute to each bucket on a real basis (inflation adjusted) and 3/18

reduce the volatility in the process, so that wealth is created, sustained and enhanced
Investing Chaos - Too Many Options…. (1)
• Too Many Asset Classes • Too many sub-options • Too many ways to invest
• Equity • Equity
• Direct by investor
• Venture Capital
• Physical – Gold or RE
• Private equity
• Debt
• Listed Equity • Demat for listed securities

• Gold • Debt • Through Asset Managers

• Credit • PMS
• REIT / InViT • Duration • AIF
• FD
• MFs
• Physical Real Estate • Active
• Physical Real Estate
• Residential • Passive
• Crypto • Commercial
• Warehousing
4/18
Investing Chaos - Too Many Options…. (2)
• Too many sub-segments • Too many strategies

• Equity • Static Allocation Vs Dynamic

• Mid/Small/Large-cap Allocation

• Domestic / International
• Listed/unlisted • Momentum

• ETF vs Fund
• Value
• Too many instruments
• Growth
• SGBs vs ETF
• REIT vs direct ownership of property • Distress / Special Situations

5/18
Investing Chaos – Asset Allocation
• Static Allocation involves wealth managers advising a pre-decided weight allocated to
each asset class based on age / risk appetite / individual’s financial position

• However, each asset class is inherently cyclical and rarely trades at fair value
• This leads to huge disparity in IRR depending on entry and exit points in the respective
asset class, even over long periods of time ~30 years

• Invariably, the outperformance of an asset class is countered by underperformance of

another asset class, leading to subdued performance at a portfolio level over such long
periods

• Dynamic asset allocation is necessary to consistently beat inflation and generate superior
risk-adjusted returns

6/18
100 % Equity Allocation Conundrum
Has huge volatility, which is difficult to digest / stomach… Huge disparity in IRR (6.5% vs. 12.1% over ~3 decades)…

From Market Highs to COVID Lows (23rd Mar, 2020)

% Fall From No. Of Years
Date Sensex Recent High
Recent High For Fall
Date Sensex No. of Yrs. IRR
26-Apr-93 2,037 4,467 -54% 1.0
22-Apr-92 4467 28 6.5%
04-Dec-96 2,745 4,631 -41% 2.2
11-Feb-00 5934 20 7.6%
21-Sep-01 2,600 5,934 -56% 1.6 08-Jan-08 20873 12 1.8%

17-May-04 4,505 6,194 -27% 0.3 29-Jan-15 29682 5 -2.6%

14-Jun-06 8,929 12,612 -29% 0.1 From Market Lows to 31th Dec, 2023

09-Mar-09 8,160 20,873 -61% 1.1

Date Sensex No. of Yrs. IRR
20-Dec-11 15,175 21,005 -28% 1.1
26-Apr-93 2037 31 12.3%
11-Feb-16 22,952 29,682 -23% 1.0
21-Sep-01 2600 22 16.1%
23-Mar-20 25,981 41,953 -38% 0.2 09-Mar-09 8160 15 15.9%

17-Jun-22 51,360 61,766 -17% 0.7 11-Feb-16 22952 8 15.6%

….and makes it difficult to remain invested / commit fresh monies during falls 23-Mar-20 25981 4 31.1%
4% diff in IRR over 20 years will lead to 2x diff in investment outcome i.e., 2x
difference in standard of living
One can cherry pick dates to buttress one’s point of equities being the best or worst asset class over long periods, but the truth lies somewhere in between

7/18
Source:bseindia.com illustration only and not recommendatory
Similar Issues
WITH OTHER Gold Long Term Debt (CCIL 11-15 year Tenor Index)
ASSET CLASSES
From To No. of Yrs. IRR From To No. of Yrs. IRR

Dec-08 Dec-13 5 11.9% Dec-04 Dec-08 4 9.9%

Dec-13 Dec-18 5 3.7% Dec-09 Dec-13 4 5.9%

Dec-18 Dec-23 5 14.1% Dec-14 Dec-18 4 8.3%

Dec-08 Dec-23 15 9.8% Dec-19 Dec-23 4 6.5%

Source: gold.org Source: ccilindia.com

Basked of all listed REITs# Basket of all listed Power InvITs

From To No. of Yrs. IRR From To No. of Yrs. IRR

Just like Equity, other asset
classes also have periods of Apr-19 Dec-21 2.8 13.7% Jun-17 Mar-21 3.8 20.0%
under-performance and out-
Dec-21 Dec-23 2 2.1% Mar-21 Dec-23 2.8 7.7%
performance with inherent
volatility Apr-19 Dec-23 4.8 7.7% Jun-17 Dec-23 6.6 14.0%

Source: bseindia.com Source: bseindia.com

8/18
illustration only and not recommendatory
Investing Chaos - No Clear Winner
2023 2022 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008
Data up to 31 Dec 2023. Returns are represented on CY basis.
Eq - US Gold Eq - US Gold Eq - US Gold Eq - Ind Debt Debt Eq - Ind Eq - US Eq - Ind Gold Gold Eq - Ind Gold

25.5% 11.8% 30.2% 28.0% 31.9% 7.9% 30.3% 12.9% 8.6% 32.9% 45.7% 29.4% 31.7% 23.2% 77.6% 26.1% • Equity-IND- is represented by Sensex from 1990 to 2002 and Nifty
Eq - Ind Eq - Ind Eq - Ind Eq - US Gold Cash Eq - US Eq - US Cash Debt Cash Eq - US Eq - US Eq - Ind Gold Debt 50 TRI from 2002 onwards;
21.3% 5.7% 25.6% 18.3% 23.8% 7.6% 12.3% 12.5% 8.2% 14.3% 9.0% 17.5% 18.7% 19.2% 24.2% 9.1%

Gold Cash Cash Eq - Ind Eq - Ind Debt Cash Gold Eq - US Eq - US Eq - Ind Gold Cash Eq - US Eq - US Cash
• Debt- is represented by SBI 1 – Yr. FD rates from 1990 to 2002 and
CRISIL Composite bond Index from 2002 onwards;
15.2% 5.1% 3.6% 16.1% 13.5% 5.9% 6.7% 11.3% 4.2% 13.6% 8.1% 12.3% 8.2% 8.4% 17.7% 8.4%

Debt Debt Debt Debt Debt Eq - Ind Gold Cash Eq - Ind Cash Debt Debt Debt Cash Cash Eq - US • Cash- is represented by SBI 3-month FD rates from 1990 to 2002
7.4% 2.5% 3.3% 12.3% 10.7% 4.6% 5.1% 7.5% -3.0% 9.2% 3.8% 9.4% 6.9% 5.1% 4.9% -23.8% and CRISIL Liquid fund Index from 2002 onwards;
Cash Eq - US Gold Cash Cash Eq - US Debt Eq - Ind Gold Gold Gold Cash Eq - Ind Debt Debt Eq - Ind
• Gold- is represented by Gold USD Spot Price conversion into INR
7.1% -9.8% -4.0% 4.6% 6.9% 2.4% 4.7% 4.4% -6.6% -7.9% -4.5% 8.5% -23.8% 5.0% 3.5% -51.3%
from 1990 to 2005 and MCX Spot Gold price in INR from 2006 ll
2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 date;
Eq - Ind Eq - Ind Eq - Ind Eq - Ind Eq - Ind Gold Debt Debt Eq - Ind Eq - US Eq - US Eq - US Eq - US Eq - Ind Eq - Ind Eq - Ind
• Equity-US- is represented by S&P 500 in INR terms; Source: AceMF;
56.8% 41.9% 38.6% 13.0% 76.6% 24.1% 8.5% 9.0% 63.8% 37.3% 43.3% 22.6% 50.4% 17.4% 27.9% 37.0%
Bloomberg
Gold Gold Gold Cash Eq - US Debt Cash Cash Eq - US Debt Eq - Ind Debt Gold Debt Gold Eq - US

16.0% 20.3% 13.6% 4.0% 20.2% 12.7% 6.4% 5.6% 22.5% 10.5% 18.6% 12.0% 13.3% 13.0% 27.1% 17.3% • Note: Debt: SBI 1 yr. 1990-2002; CRISIL Composite 2002-2012, Debt
Cash Eq - US Eq - US Eq - US Gold Cash Gold Gold Debt Gold Debt Cash Debt Cash Eq - US Cash only Model Portfolio 2013 onwards; Cash- SBI 3-month deposit
1900-2002; HDFC liquid (g)- REG 2002-2012;HEFC Liquid (G)- Direct
7.5% 11.7% 6.8% 3.8% 13.5% 6.4% 5.9% 1.3% 9.0% 8.1% 11.0% 9.4% 13.0% 7.0% 16.5% 12.1%
2013 onwards; Gold is represented by Gold USD Spot Price
Debt Cash Debt Gold Debt Eq - Ind Eq - US Eq - US Cash Cash Cash Eq - Ind Cash Eq - US Debt Debt
conversion into INR from 1990 to 2005 and MCX Spot Gold price in
6.9% 6.0% 4.8% 0.5% 8.1% 5.7% -10.1% -3.7% 5.7% 6.5% 7.0% -0.8% 8.8% -1.9% 12.0% 11.0%
INR from 2006
Eq - US Debt Cash Debt Cash Eq - US Eq - Ind Eq - Ind Gold Eq - Ind Gold Gold Eq - Ind Gold Cash Gold

-7.8% 4.0% 4.6% -0.3% 4.6% -23.8% -17.9% -20.6% 2.4% -16.5% -14.0% -3.2% -20.8% -2.3% 10.3% 6.3% • S&P 500 in INR 1992 onwards

9/18
illustration only and not recommendatory
Investing Chaos - Risk-return dilemma
• Everyone wants maximum returns with minimum
risk, which is a fallacy

• Higher the returns targeted, higher the risk that needs to be

taken
• Higher the risk taken, higher the variability in returns

• One needs to have a framework for optimum, and

not maximum, risk-adjusted return keeping goals in
mind Scenario 1 31-Dec-23 31-Dec-24 31-Dec-25 31-Dec-26 31-Dec-27 31-Dec-28
Return 1 40% -20% 40% -20% 40%
Investment 100 140.00 112.00 156.80 125.44 175.62
CF -100 175.62
• Short term strategies are inherently volatile and do not IRR 12%
necessarily lead to higher IRR
Scenario 2 31-Dec-23 31-Dec-24 31-Dec-25 31-Dec-26 31-Dec-27 31-Dec-28
• Sustainable / long term strategies are inherently less Return 20% 0% 20% 0% 20%
Investment 100 120.00 120.00 144.00 144.00 172.80
volatile and lead to sustainable wealth creation CF -100 172.80
IRR 12%

10/18
Key Investing Guidelines (1)
• Follow dynamic asset allocation
• Strategy to earn the desired tax-cum-inflation adjusted real return
• Smoothens out the volatility of portfolio growth owing to non-linear returns and linear expenses
• This ensures quality / standard of lifestyle is not compromised
• Have an optionality to improve the desired tax-cum-inflation adjusted real return
• This ensures that quality / standard of lifestyle can be upgraded

• For all incremental investments in a year, adhere to overall asset allocation

• Avoid buying stocks in own name – invest through asset managers

• Saves tax on churn and dividends
• For direct investment in stocks earmark a fixed % of networth and stick to it, so that risk can be contained

• Avoid large commitments till networth reaches a significant amount, as one keeps upgrading
through the initial periods of one’s life
• An “ok” house today will be a not so ok house tomorrow
• Rental yield is way lower than portfolio income one can generate, and thus mathematically it will lead to lower
net worth
11/18
Key Investing Guidelines (2)
• Avoid active managers (AIF / PMS / MFs) - invest in passive funds and in “direct” plans of
MFs only
• Gain compounding of lower expense ratio paid
• High expense ratios incurred without sound reasons
• Logical for active funds to outperform passive index funds
• Impossible to predict “which” active
• Basket of active funds is akin to a passive index fund, owing to each fund having 50+ stocks on an
average, leading to no outperformance over long periods
• Higher expense ratio of active funds vs passive leads to underperformance on overall basis over long
periods
• Over a 10yr period, a 100bps delta between expense ratio of active and passive funds leads to a
delta in networth equal to 31% of initial investment amount

• Avoid jeopardizing your “FUTUREs” and your “Options”

• Avoid illiquid investments
• Liquid listed alternatives available to play any theme
• Impedes ability to switch to better alternatives if they become available later
12/18