Smart Portfolios: A Smart way to Invest in Mutual funds

Different investors have different levels of risk tolerance. Some investors can digest stock market volatility and sharp cuts in their investment portfolio and yet sleep peacefully at night. Some investors have very little to no risk tolerance. Finally, some investors are in between with a moderate risk profile. Investors would like to have tailormade diversified investment portfolios to suit their risk profile. This article will discuss Glide Invest smart portfolios that are customised as per the investor’s risk profile.

We will discuss:

1. The different types of customer risk profiles
2. What is asset allocation and why should an individual invest in a diversified investment portfolio, and
3. How to Glide Invest smart portfolios cater to the investment needs of investors with different risk profiles

Types of Customer Risk Profiles

Based on risk profile, we can categorise customers into three types:

1. Aggressive Risk Profile
   
   An investor with an aggressive risk profile has a high tolerance for risk. These investors prefer to take high risks and invest a major portion of their money in equity mutual funds with the aim of earning high returns. They can withstand volatility, and even sharp falls in the stock market in the short term. They aim to benefit from the magic of compounding and create wealth in the long run.
   
2. Moderate Risk Profile
   
   An investor with a moderate risk profile can take the risk to a limited degree. These investors invest in a mix of equity and debt instruments. Equity mutual funds have the potential to provide inflation-beating high returns. Debt can provide stability when equity markets are volatile or undergoing a correction. They aim to make the best of equity and debt and earn appropriate risk-adjusted returns.
   
3. Conservative Risk Profile
   
   An investor with a conservative risk profile has very limited to no tolerance for risk. These investors invest a major portion of their money in fixed-income instruments. They have to be content with low to moderate returns. Sometimes, the returns may not beat inflation resulting in negative real returns.

Asset allocation: What is it and Why it is Important?

Asset allocation refers to the process of diversifying investments into various asset classes such as equity, fixed income, gold, real estate, etc. The idea is to diversify risk. Also, we cannot predict which asset class will do well in which year. Hence, if you spread investments across various asset classes with low correlation, your portfolio will do well, irrespective of whichever asset class or classes do well.

Different asset classes have a different role to play in an investment portfolio:

1. Equity is for growth and has the potential to give inflation-beating high returns.
2. Debt is for the stability of the portfolio when equity is volatile or going through a correction.
3. Gold is a hedge against inflation. It is also a safe haven during times of economic uncertainty.

The asset allocation of an investor will depend on their risk profile. For example:

1. An investor with an aggressive risk profile will have a higher equity allocation, followed by fixed income, and gold.
2. An investor with a moderate risk profile will have a balance between equity and fixed income with some exposure to gold.

An investor with a conservative risk profile will have a higher allocation to fixed income, followed by a small allocation to gold and equity.

Glide's Smart Portfolios: Customized Investment Portfolios Based on Risk Profile

In the earlier sections, we discussed the different types of risk profiles and the appropriate asset allocation. If you wish to assess your risk profile and invest as per the appropriate asset allocation, Glide Invest has introduced smart portfolios.

What are Smart Portfolios and Why should one Invest in them?

Smart portfolios are unbiased portfolios managed by professionals. These are diversified investment portfolios with an appropriate asset allocation recommended to investors based on their risk profile. The portfolios recommend investment in passive funds with a preference for ones with lower expense ratios, lower tracking error, and higher assets under management (AUM).

Some of the features of these portfolios include:

1. Research-backed - The portfolios consist of carefully picked mutual fund schemes based on tested strategies using unbiased algorithms.
   
2. In-depth analysis - The portfolios give you access to methodology and back-tested data for making an informed decision.
   
3. Peace of mind - About 80% of the active funds underperform their benchmarks. The smart portfolios give you an opportunity to diversify and stay ahead.

Glide Invest Smart Portfolios

Glide Invest has introduced three smart portfolios:

Core Defensive

• The Core Defensive smart portfolio is designed to give steady returns even if the market fluctuates. It is meant for investors with a conservative risk profile. The asset allocation is majorly skewed in favour of fixed income products with some allocation to domestic and international equity. It provides capital protection with some capital appreciation.
• Apart from conservative investors, other investors with a short investment time horizon or those who are near goal completion can also invest in this portfolio. The asset allocation of the portfolio is as follows:

Core Growth

• The Core Growth smart portfolio is meant for investors with an aggressive risk profile looking for capital appreciation and creating wealth. The portfolio has historically outperformed equities over the last 15 years, with relatively half of the risk associated with equities. Investors can invest in and hold the portfolio through various market cycles and crises.
• The asset allocation of the portfolio is as follows:

Core Balanced

• The Core Balanced smart portfolio is a well-diversified portfolio to give the investor the right balance between risks and returns. The portfolio has significantly lower risk than equities but has good upside potential. It comprises an all-weather portfolio to invest in and hold through various market cycles and crises.

• The asset allocation of the portfolio is as follows:

The USPs of Smart Portfolios

Some of the USPs of smart portfolios include:

1. The risk involved in these portfolios is 40-50% lesser than mutual funds
2. These portfolios have the potential to give 3-4% better returns than mutual funds
3. The portfolios recommend investment in passive funds (direct option); hence there can be a savings of up to 2%
4. Whenever there is a need, a tax-free rebalancing is done

How to invest in a Smart Portfolio?

You can invest in a smart portfolio using the following three simple steps:

1. Choose a portfolio based on your risk profile
2. View the portfolio objective and back-tested data to make an informed decision
3. Choose an amount and invest. You can invest either a lumpsum or start a systematic investment plan (SIP).

Investing in Smart Portfolios with the Glide Invest App

In the above section, we saw the types of smart portfolios, their features, asset allocation, and how to invest in them. You can partner with the Glide Invest App for your financial planning journey to get recommendations for the appropriate smart portfolios and mutual fund schemes based on your risk profile. You will get advice on planning and systematically investing towards your financial goals.

With Glide Invest, you will get guidance for:

1. A personalized risk profile assessment
2. Identifying your financial goals
3. Appropriate asset allocation
4. Making a financial plan for each goal
5. Automating the financial plan
6. Review and analysis of your financial plan 
7. Hand holding you till your financial goals are achieved

To start investing towards your financial goals, download the Glide Invest App from Google Play Store or Apple App Store and get started.