Portfolio Construction Principles
Asset Allocation: Equity vs Debt vs Gold
Asset allocation is dividing your investment capital across different asset classes like equity (stocks/Nifty 50), debt (bonds, FDs), and gold. This helps manage risk and optimize returns.
Risk-Adjusted Diversification
Different asset classes have different risk-return profiles and often behave differently in various market conditions. Diversification aims to smooth out returns and reduce overall portfolio volatility.
Sample Allocation: 50% Nifty, 30% Gold, 20% Debt
This is an illustrative example. A 50% allocation to Nifty 50 ETFs/Index Funds provides equity growth, 30% to Gold ETFs/SGBs acts as a hedge, and 20% to Debt Mutual Funds/FDs offers stability.
Periodic Rebalancing
Over time, asset allocations can drift due to different growth rates. Rebalancing involves selling assets that have overperformed and buying those that have underperformed to bring the portfolio back to its target allocation. This is typically done annually or semi-annually.