Investors plying their trade in Mutual Fund schemes are advised to follow a strategy entailing the creation of two different sets of portfolios. These two sets of portfolios are core and satellite portfolios,
which have a unique purpose. Allocating assets in these is considered a smart investment strategy for long-term wealth accumulation.
For young investors, curating a core-and-satellite portfolio is identified as the safest means to raise their financial standing over time.
Core and Satellite Portfolios
The core portfolio typically comprises diversified and low-cost investments such as index funds, ETFs, or blue-chip stocks that track benchmark indices like Nifty50. Called the basis of an investor’s financial assets, a core portfolio offers investors stability, long-term growth and manageable risk amidst market volatility. Such a portfolio usually consists of 60-80 per cent of the total assets, with the main goal being to enjoy consistent returns.
With a satellite portfolio, a portion of the assets is invested in high-risk, high-reward schemes that may provide higher returns on specific opportunities and market turns. Such a portfolio usually comprises investments in individual stocks and sector-specific funds.
Asset Allocation
According to Pallav Bagaria, Director at Sapient Finserv, the core and satellite portfolio strategy upholds the principles of wise asset allocation. While a core portfolio allows investors to steadily grow their regular mutual fund investments, the satellite portfolio helps them maximise certain periods and opportunities presented by the financial market.
“The core should be stable, diversified, and long-term in nature, built through asset allocation across equities, debt, and other suitable asset classes. The satellite portion, on the other hand, is where investors can take well-thought-out positions in themes or sectors that are currently showing promise. In today’s market, areas like consumption, IT, and autos are seeing strong traction, but these exposures should be tactical, limited in size, and reviewed regularly,” said Bagaria, as quoted by Mint.
Investors are advised to place money in large-cap funds and index funds as part of the core portfolio and reserve investments in mid and small-cap stocks and funds in the satellite portfolio. Founder of Apna Dhan Financial Services, Preeti Zende, says, “While investing in equity mutual funds, you should consider building the portfolio under a core and satellite approach.”
“In this pattern, a larger proportion of money should be invested in the large and Flexicap fund. At the same time, a small portion could be invested in good-quality mid- and small-cap stocks as a satellite portfolio.”
