Answer to Question #148601 in Finance for kamakshi dargan

Question #148601
Rajesh, 35-year-old salaried individual wishes to invest Rs. 15 lakhs in different investment avenues. He plans to invest for the education of his two children aged 5 and 8 years old, retirement and contingency. Assuming the role of a Portfolio Management Consultant design a suitable portfolio for Rajesh if –

a. He is willing to take moderate risk for his investments.

b. He is a risk neutral investor.
Expert's answer



Willing to take moderate risk:

If Mr Rajesh is prepared to take a moderate risk, then it is possible to diversify his investment instruments.

A moderate risk investor needs equally decreased losses and better returns. To achieve higher long-term returns, this investor is able to take modest risks. In return for long-term appreciation, a moderate investor will suffer a short-term loss of principal and a lower degree of liquidity.

There are many forms of risk related to any investment instrument; they are market risk, interest risk, liquidity risk and tax risk.

With a few financial securities, a moderate risk portfolio can be developed, which can include stock shares, mutual funds, debentures, and even bank deposits. These tools will minimise the major risks mentioned above and at the same time generate healthy growth.

Looking at his profile, we can conclude that his investments are long term in nature, so that the capital can be saved for at least 10 years before he gets money for the schooling of his children.

B All the investments are very liquid in nature, so he can liquidate them quickly anytime Mr Aravind wants funds.

It is possible to divide 15 Lakhs into 35% shares, 25% mutual funds, 20% debentures (secured) and 20% bank fixed deposits.

  • For 10 years, 25% growth is anticipated in financial markets, blue-chip stocks and mid-cap stocks with strong growth prospects.

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