This wealth manager says even risk-takers must invest in debt funds. Here’s why

Kirtan Shah, MD - Private Wealth, Credence Family Office

Known for his insightful investment nuggets on X (formerly Twitter), Kirtan Shah commands a substantial fan following on social media. As managing director of private wealth at Credence Family Office, which manages over Rs 10,000 crore in assets, he is associated with the wealth industry. But that’s not all.

As part of the education and training industry, he heads two ventures, FPA Edutech, a training provider of international certification programmes, and Ambition Learning Solutions, a leading player in the BFSI training industry, both of which he co-founded several years ago.

Shah, spoke to Moneycontrol’s Maulik M about how to design a simple portfolio and the importance of staying invested for the long term. Edited excerpts.

When the equity market is at a high, many investors say they want to wait to invest. What would you say to them?

This is a well-known fact and there are enough data studies to show that every time you invested at a market peak but stayed on for a longer time, your experience would have been the same had you invested at any other time.

Very specifically, if you're a sophisticated investor, and you understand valuations are expensive, or you understand there is a strong resistance (technicals), and you want to wait, that's a call you can take. But 99.9 percent of retail investors don’t really have the capability to judge this. If you are confident in the India story, and believe in at least 6-8 percent GDP growth roughly, plus a 4-6 percent inflation, I don't see a reason why markets will not deliver about 12 percent CAGR (compound annual growth rate).

As a retail investor, you have only two things in your control. First, how much you save, and second, how long you stay invested. You can’t predict the return you will make or what (large-, mid- or small-cap, or value or growth style) will work in the markets in the next few years.

So play to your strengths, invest as much as you can and remain invested for as long as you can.

Also read: Confused about which mutual funds to invest in? Check out MC30

If someone has Rs 10 lakh today, where should they invest it?

First determine your risk profile and then, design an asset allocation strategy. So if you're an aggressive investor, you would want more money in equities, if you’re conservative, you would want less. But both investors will still need other assets, too.

For example, if you are an aggressive investor, I would still suggest that you have 20 percent in fixed income and gold depending on what you read about the macros.

I am always asked why an aggressive investor must also have fixed-income investments. Even if I don’t talk about how that reduces risk without hampering returns, I would say, when the market falls, say, by 20 percent, most of us don’t have any additional money to invest. At such times, you can use this fixed income portion to buy markets at lower levels.

More specifically, I have a very simple formula.

• In equity, you don't need more than four or five schemes, irrespective of your investment amount, whether Rs 10 lakh or Rs 10 crore.


• Split this equally between large-cap, mid-cap and small-cap funds, because you don't know what will work in the next few years.


• Make sure that your investment horizon is at least 8-10 years.


• Also make sure that you have a good balance between fund houses that follow the value style and those that follow the growth style of investing.


• Then, some part of your portfolio will definitely be performing irrespective of the cycle that you are in.


• For fixed income (for an aggressive investor), you can put money in a medium-duration fund and a credit risk fund. Currently, we feel interest rates have topped out and that medium- and long-duration debt funds will do well for the next few months. But when rates are low (24 months from now), credit funds will start doing well. So that gives balance to your fixed income portfolio.

In India, typically flexi-cap funds work like large-cap funds. On the other hand, when you invest around 33 percent each in a large-cap fund, mid-cap fund and small-cap fund, then the risk of this strategy is as good as a large cap fund (based on standard deviation) and your returns are as good as for mid-cap funds. On a risk-adjusted basis, it’s better than investing in flexi-cap funds, with your eyes shut. There are hardly two or three flexi-cap funds that are genuinely flexi-cap.

What do you think of gold as an investment? And what about investing in it today?

For me, gold is a tactical bet. I hear a lot of us saying that we should have gold. But what is going to significantly change in your portfolio with a 5-10 percent allocation to gold? Nothing.

If you look at the last 12 years, gold's dollar return has been 0 percent, and the rupee return has been 3.5 percent, and that’s only because the rupee has depreciated. So, what problem is gold really solving in your portfolio? To me, it is an extremely tactical bet.

Is that bet going to work, today? I think, yes.

Gold works very differently in terms of dollars and in terms of rupee. First, gold in dollar terms—whenever the dollar depreciates, gold will go up because then people buy more gold. Are we expecting the dollar to devalue? The answer is yes, because we think interest rates globally have topped out and when rates start falling, you will see the dollar depreciate. So in terms of dollar denomination, we think gold will do well.

But I'm not sure how well it will do in rupee terms. India is expected to be a far stronger emerging market (EM) currency versus others in the EM space. So if the dollar were to depreciate, the rupee would go up. This will be counterproductive for gold returns in rupee terms.

So your bet depends on both these factors, and they are both at pivoting points right now. So a retail investor should not take this bet.

Also read: Golden Tips: Be savvy about making charges when buying jewellery this Diwali

Do debt funds still make sense after the loss of indexation benefits in 2023?

As a retail investor, I have multiple other options. I can go for corporate deposits and fixed deposits in small finance banks. Now, we can argue that interest rates are going to fall and so long-duration funds will do very well (give capital gains). But that is not written anywhere. So these funds are not meant for retail investors.

But for a sophisticated investor, I think long-duration funds are still the most appropriate option, provided you understand the interest rate cycles. Making around 8-8.5 percent is no problem at all if you can give it two to three years and understand the cycles. Debt funds give many advantages to a sophisticated investor—ease of liquidity, multiple categories to choose from depending on risk capacity, and scope for diversification. So, such investors should still stick to debt mutual funds.

What are some of the biggest investment mistakes to avoid?

• Looking at the last three years’ returns and investing in the market.


• Investing based on some data points given on media or social media.


• Diversification does not mean having 20 funds. Many investors keep adding newer funds in the name of diversification.


• Lack of discipline. Most equity fund SIPs (systematic investment plans) close in two years’ time.