Tuesday, November 18, 2008

Balanced Portfolio

A Balanced Portfolio is one that is designed to take care of capital preservation to an extent and at the same time to generate decent returns when compared to a Conservative Portfolio. A conservative portfolio can give a return of around 10% per annum and it may go up or down based on the returns generated by the 25% equity component. Otherwise our capital that we invested in it would remain almost intact. In a Balanced Portfolio we would invest around 50% in equities and the remaining 50% in safe investments like in the conservative portfolio.

A Balanced portfolio is ideal for people who are ready to take a medium risk by investing in stock market and at the same don't want to expose themselves to too much risk.

In a Balanced portfolio since half of our money is invested in safe instruments, even if the markets crash atleast half of our money would be safe. The equity exposure would give us decent total returns on our investment.

Pls refer to the Conservative Portfolio to find out the instruments that can be used for the safe investment part.
Pls refer to the Aggressive Portfolio to find out the instruments that can be used for the equity investment part.

A Sample Balanced Portfolio:

Direct Share investment - 10% -> Rs. 10,000/-

This amount can be directly invested in Large Cap stocks that have been growing at a consistent pace over the year. Pls check the article on criteria to be considered before choosing stocks so that you can choose good stocks for your portfolio.

Do not invest the whole amount at one shot. Buy in a phased manner. Say for e.g., buy shares worth Rs. 5,000 every 6 months

A Systematic Investment Plan (SIP) in a Diversified Equity Mutual fund for Rs. 2000/- per month which is Rs. 24,000/- per annum
A SIP in an ELSS Mutual fund for Rs. 1500/- per month which is Rs. 18,000/- per annum

Investing the SIP way is the best way to invest in Mutual funds because they average out the cost of purchase because we keep buying even when the market is down.

Gold - 10% -> Rs, 10,000/-

Bank Fixed Deposit - 20% - Rs. 20,000/-
PPF - 20% - Rs. 20,000/

Net amount invested = Rs. 1,02,000/-

What Returns can you Expect out of this portfolio?

As we know, PPF & PPF give us a return of 8% per annum and Banks give us returns of upto 10% per annum. We will assume that gold would give us a 15% return per annum. Lets say the Shares gave us a returns of 25% this year and the Diversified Equity fund a return of 30% and our ELSS fund a return of 23%.

Value of Shares at the end of one year - Rs. 12,500/-
Diversified Equity MF Value at the end of one year - Rs. 31,200/-
ELSS MF value at the end of one year - Rs. 22,140/-

Value of Gold at the end of one year - Rs. 11,500/-

Amount in Bank FD at the end of one year - Rs. 22,000/-
Amount in PPF at the end of one year - Rs. 21,600/-

Net portfolio worth at the end of one year = 1,20,940/-

Returns on Investment = 18.5%

Happy Investing...


  1. Hi,

    I want to invest 40-50k each month.

    What would be the right approach to make it balanced portfolio ?


    1. Hi Amit,
      A Balanced Portfolio is around 40 to 50% Equities and remaining in safe options like bank deposits, PPF, NSC etc. If you are a novice stock market investor I suggest you take the SIP Route. You can read more about Systematic Investment Plans by Clicking Here.


  2. Hi vijay should I go for mutual fund now as the rupee value is going down.i want to invest 1lac per month.

    1. With stock markets being so volatile, yes Mutual Funds may be the best route to gain exposure to the stock market.

  3. Hi Vijay, Its been a pleasure reading your Blog. It's wonderfully written.
    I have just started in a job, 35000 in hand salary increasing 10% pa.
    I would like to invest for my future, I can invest 7-10K pm.
    I want to start early. Please suggest me a good strategy.
    I think I should go risky now and in long teerm moderately transform my asset to more conservative once.
    I have 30-40 years ahead of me.

    1. Rahul - Great decision on starting to invest. I have just published a book titled "Your Complete Guide to Indian Income Tax and Retiring as a Crorepati". In this book, I have outlined a strategy to take full advantage of our Indian Tax benefits and form a retirement portfolio that can help you retire as a CROREPATI. This will be extremely useful for you. You can buy the pdf book here: https://www.distribly.com/product/1688?aid=15702

      Best wishes


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