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Up Your Investment Ante By Adding Curated Baskets To Your Portfolio

"OpenQ Hybrid Equity, the OpenQ WealthBasket has created a portfolio that dynamically allocates and shifts between equity, debt, and gold investments, depending upon the market situation. "

Photo Credit : Shutterstock

Mutual funds are perhaps the most widely promoted investment vehicle, not just in India, but in the world. However, just because they are well-known does it mean that they are the best investment vehicle for you? I believe they are not.

Before we get into the business of understanding why there might be better investment products for you out there, let us understand mutual funds in a nutshell. Mutual funds are investment vehicles that pool investor money to create and manage investment portfolios that invest in multiple asset classes and can follow different themes. As an investor, you would own a small piece of this very large portfolio. The ultimate goal of mutual fund investments is to provide financial gain, achieved through an appreciation in the value of the underlying assets and through dividend / interest income. Originally, mutual funds were envisaged as a way to provide small investors access to the benefits of professional money management and to enable portfolio diversification. Inarguably, mutual funds do meet this mandate. However, with the proliferation of Registered Investment Advisors (RIAs) and the emergence of new age advised wealth platforms that democratise wealth management, mutual funds are neither the only, nor the best, way to invest your money.

RIAs vs Mutual Funds

RIAs who specialise in individual portfolio management and have the relevant expertise and experience can help you manage and create more value accretive investment portfolios. They offer you the benefits of mutual fund investments while also overcoming some of the negatives of mutual funds.

· Better risk-adjusted returns: The primary purpose of all investments is to generate superior risk-adjusted returns. From that perspective, curated portfolios created by RIAs can potentially generate superior returns compared to similar mutual fund schemes. Take for example, the OpenQ Hybrid Equity WealthBasket created by Quantech Capital. Similar to a Dynamic Asset Allocation Mutual Fund, the OpenQ WealthBasket has created a portfolio that dynamically allocates and shifts between equity, debt, and gold investments, depending upon the market situation. However, when you compare the performance of the two funds, you will see that the OpenQ WealthBasket has performed better than the category average over multiple time frames.

· Optimal diversification: The portfolios created by RIAs are well-diversified but focused on a smart investment strategy. To achieve optimal diversification, you do not need to invest in a vast variety of investments. As a matter of fact, adding investments beyond a certain threshold can actually negate the positive effects of diversification. RIAs create curated portfolios that are well-diversified and can generate optimal risk-adjusted returns.

· More transparency: When you invest in the RIAs portfolio through any advised wealth platform, the holdings of the portfolio reflect in your demat account. Any subsequent changes to the portfolio can only be made by you, based on rebalancing changes triggered by the RIA. Thus, the portfolio composition is fully transparent and in your control. Mutual funds do publish portfolio holdings on the monthly basis; however, they do not provide the same level of transparency as above.

· Customised exposure: RIA portfolios will give you exposure to a select theme or idea that can potentially meet your unique requirements. For example, an MNC basket can give you exposure to multinational companies that can benefit from global growth or a chemicals basket can give you exposure to niche chemical companies. These curated portfolios allow you to participate in focused ideas and themes which can potentially enhance overall portfolio returns. This is not possible through mutual fund investments. Additionally, through RIA curated portfolios, you can also invest in ETFs that are passively managed and can give you returns that closely mirror the underlying index. By focusing on multi-asset diversification across equity, debt, and gold, ETFs can give you the asset allocation you desire.

· Top quality research: Qualified and well-experienced RIAs can create superior quality investment portfolios that can provide the relevant exposure and generate better risk-adjusted returns. Further, it is important to note that since RIAs do not manage portfolios at the scale of mutual fund portfolio managers, they are better positioned to give your investments the time and attention required to deliver good returns.

Today, the financial services and investment industry is focusing on product innovation to ensure that you can have access to customised financial solutions in a transparent and efficient manner. Specially created portfolios by RIAs are one such innovative investment option. Going one step further, in addition to actively and passively managed portfolios, you can also invest in Smart Beta (bridge between active and passive management) products and asset allocation focused portfolios that can effectively meet the nuanced needs of your investment portfolio. With such options now available, you no longer need to settle for mutual fund investments to give your portfolio an edge.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.


Ujjwal Jain

CEO & Founder, WealthDesk

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