The Alternative Investments & Your Portfolio

In Financial planning it is important that you have a proper asset mix balance that support your financial goals and relect your meaning for money. The advertisement by ING "Ente nattil .. Panam verum panam matramalla...." captured the sentiment of money for Indians. It reveberated on different TV channels in many languages.


The general norm is that you allocate 100-your age into equity and remaining into debt, a concept borrowed from John Bogle. However, the passage of time has taught man that store of value can be in other forms of asset classes as well. So if you start with Bogle's law, then make room for other asset classes from what is meant for Debt portion. Alternate Asset classes include Gold, Commodities, Realty, Art & collectibles, Private Equity among other things. Your preferences for the asset class will be ruled by your risk disposition. Your need for liquidity, holding period, stability of value or growth, personal belief and priorities will go a long way in asset allocation decisions.


Gold give support against inflation and seves as an instrument for intergeneartional transfer of wealth. No Indian marriages takes place without gold unless one is a hardcore communist. Today gold is available from Commodity Brokers through the derivatives mode, Stock Brokers through GOLD ETFs, Banks through recognised branches in the form of Coins, Bars and Ingots in addition to the traditional Jewellers. An allocation of 15-20% is considered normal in this asset class.



Commodities (metal and non-metals) are emerging as an alternative investments by the learned investors. Transfer of wealth happened to take place by exchange of valuable commodities during the barter days and in the modern age at the time of marriages. Today Electronic form of trade has developed with Commodity Futures and Options traded on the Stock exchanges exclusively set up for that purpose. Forward Market Commission is overseeing the activities in this segment. As they are highly risky investments, one need not only knowledge about the commodity that you deal with but also the rules and regulations of trading in addition to the price-volume movements. These are suitable for HNIs and of course for bulk dealers in the commodities irrespective of whether they are traders or manufacturers.


Realty is another Alternative asset that is waiting to catch up investor interest in the electronic form. Realty had investment interest even when India did not have many listed companies in that sector. However, now there is an Index that tracks relaty shares, a Regulation from SEBI that guides Mutual Funds in this segment and a lot of players are evincing interest, the latest being Godrej Proprties Ltd taht got listed at a premium in the early days of January 2010. 15-20% asset allocation is normally recommended for this class that acta as a cushion; Here realty is to be understood as an investment different from your primary residence.


Art & Collectibles are getting commoditised in the Indian Markets. earlier considered as personal effects, no more in that tribe for Income Tax purposes from Budget 2007. One gets portfolio information on the class of artists and nature of work.
In 1987, when the first auction of Indian contemporary art was held in India, Maqbool Fida Husain’s Mother Teresa sold for Rs 5 lakh. Two years later, his Tribute to Hashmi sold for Rs 10 lakh. In 1992, Amrita Shergil’s Village Group sold for Rs 11 lakh at Sotheby’s auction in New Delhi.3-5% asset allocationis recommended in this class.


Private Equity popularly known as PE is also catching up among the wealthy Indians. PE offers more than average profits while supporting business investors prior to they reach the IPO market with a stable business funding proposal. Substantial investments blocked over 5 years and exit is available only through selling back to promoters or IPO routes makes it suitable for HNIs with very deep pockets.

Therefore, when we look at a comman man what kind of stardisation is possible for asset allocation?
At the bottom of the pyramid, we have BPL families as defined by the Govt. Such investors will have to look for MICRO Mutual Funds Schemes, NO-Frill Bank Accounts to accumulate savings. Their primary aim to acquire assets for higher living standards and additional income requires thrift. They come under the National Food Security Act eligible of 25 Kg of rice @Rs3.00 per Kg for a family unit of five members. So the 80:20 rule for this group may be read as 80% saving and 20% spending to reach faster economic development. Instead of going for pure investment plans, they should look at Protection needs specially using endowment plans to attain both goals of investment & protection.
The Creamy layer class in India cuts across income classes and therefore not made part of this article.
The Lower Middle Class can follow more or less same pttern as BPL families with more tilting 15-20% on the invesment part reducing emphasis on 100% endowment plans for savings and investments.

As the income level goes up tilting can be increased towards investment products progressively and the HNI may reach a level of pure protection plans for insurance needs.
So then what is the definition of HNI? the following table may give some clarity.

Ultra-HNWI : $. 30 million
Super-HNWI : $. 10-30 million
HNWI : $. 1-10 million
Super Affluent :$. 1,25,000-$1million
Mass Affluent :$. 25,000-1,25,000
Mass Market : $. 5,000-25,000

In the above discussion, I have just bifurcated between pure savings and combination of savings with protection.

Now one has to bring in the personal believes, risk disposition and make suitable adjustments for deciding how much into what asset classes within the broad groupings. For this one may begin with fameous bogle law and then proceed.

2009: A bird's eye view on Mutual Funds Industry of India

Predominantly a regulation driven industry, the year 2009 saw far reaching steps taken by SEBI both regarding the Management of Fund operations and also the revamping of Distribution.

Bond Funds got the maximum from the Regulator this year: The year started with clamping 30% upper limit on the Money Market Instruments of an entity other than Governmentof India in the Total Funds invested by a Fund. The culprits of October 2008 liquidity crunch, the liquid plus schemes were asked to limit themselves into 91-day spectrum by May 01, 2009. Even the use of the words"liquid plus" was to be ceased. The valuation norms were re-stored to pre-October 2008 levels.

The practice of propagating the expected yield and portfolio in the case of Fixed Maturity Plans were banned

Again the portfolio declaration of Debt Funds was given clarity by prescribing Issuer class and content for the instruments from the Maturity, Secured/Unsecured, Quality and Coupon angles.

The other important step was on the distribution side: Front end loads got abolished; Exit load was rationalised for all class of investors. And a new channel for distribution was created by allowing a platform exclusively for trading in Mutual Fund units. But here is a catch: Brokers normally deal with short term perspective on hihly risky equity & Derivatives of different types; whereas the MF products are of long term perspective being risk adjusted portfolios.NSE opened the chanel on November 30, 2009 & BSE on December 04, 2009.

This is bringing a new culture to the investors: paying for the services of the distributor, which was absent previously.

The other step SEBI initiated was on the governance side: The Trustees of the Mutual Fund has to certify the need for bringing out a new scheme. The product innovation and product differentiation wil get a boost enabling the investors in better financial planning.

The reduction in filing fees was relief for fund houses that were frequently bringing out schemes. The Technology audit has become compulsory for this industry. Soft copies of 'SAI' and 'SID' will hencefoth will be displayed on both websites of AMFI and SEBI

The new faces that were on the stage belonged to Shinsei and Axis, although former was toying the idea of stake sales by the year end. Goldman Sachs, though took the approvals in 2008, not responded during 2009.

2009 was also noted for entry of sectoral funds in the debt segment. Sinsei MF and Baroda Pioneer MF were seen pushing the trend.

A study conducted by ICRA has revealed that during 2008-2009, the investor class that remained more than an year with fund houses was the Individual investor. This gives reasons for fund houses to design exlusive programms for them.

Wish you happy investing!!


People who read this, also read:

1. Product Differentiation in Debt funds
2. Alive & Kicking: The Indian MF Industry