To be invested in equities I normally look for the following characteristics in an individual. Will enumerate them here, but when I make such a statement, I mean really heavily in equities – like say 85% on a portfolio BELOW Rs. 5 crores.

Beyond Rs. 5 crores, frankly ratios do not matter. I know a 86 year old who has about Rs. 15Lakhs in bank FDs, about Rs. 1 crore in debt funds of mutual funds and about Rs. 13 crores in DIRECT EQUITIES. What I call asset allocation indifferent. Has enough dividend income to run his life 🙂 and a son who looks after the portfolio.

If you do not have these characteristics, invest LESSER amounts in equities.

Characteristics:

1. MUST, MUST, MUST understand markets. Not so easy, but make an attempt damn it

2. Should have been in financial markets at some stage of his life. This helps knowing somewhere to check on whats happening in the market.

3. Understand enough maths to know Mean, Median, Mode and Standard Deviation.

4. Understand the risk of inflation, and that VOLATILITY is not risk.

5. Have a real LONG TERM VIEW (think in terms of life times and generations, in terms of 20 plus years). If you think 3 years is long term, you have been talking to your RM for too long. You need to de toxify.

6. You should really have short term RISK TOLERANCE. If you panic every few months while looking at your portfolio and buy put options to ‘protect’ your portfolio, you will damage your net worth because of your RISK INTOLERANCE.

7. The amount you wish to draw down should be in zero volatile assets like bank fixed deposits, liquid funds, low duration debt funds, etc.

8. Over a real LONG TERM a non hedged portfolio without ANY debt element gives the best possible return.

9. I would do this for myself, but DARE NOT RECOMMEND IT TO any client, or as a case study in my training(s).

10. Dramatic Calm Mind and Mental Peace is also a pre-requisite. Ask yourself what were you doing when the market came down from 21k to 9k? Did you sell at 10k and feel great at 9k? Then this is not for you. Think like a WINNER not as a person ‘who does not want to lose’.

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  1. On 10th point, Should we not feel great at 9K ? I think 9K is a great chance for any investor who looks for long term. History is showing that market always stabilizes after a huge volatility.

  2. dear subra sir,

    Just now was having a look at pattu’s goal optimization calculator ( god bless him) and had a thought “why cant i remain invested in equities till 75 years or more) and just checked your blog. I mean yes, the equities ratio should go down but shouldn’t be zero. Thanks again

  3. Good points. But point 7 (liquid funds, low duration debt funds, etc.), you really think these are not volatile anymore? 🙂

  4. I am a NRI and recently wanted to open a Dmat & Equity trading accounts for Investment into Indian stock markets. Here is the price list that I have got upon enquiry.

    Opening charges :

    Equity Trading a/c : INR 3500
    D-Mat a/c : INR 1000
    PIS account : INR 1000

    Maintenance Charges per annum:

    Dmat+Equity Trading : INR 1400
    PIS account : INR 1000

    Transaction Charges :

    For Buy : 0.75% + Taxes For sell : 0.75% + Taxes (No Intra day trading for NRIs as per SEBI)

    PIS account reporting charges : INR 100 for each buy and INR 100 for each sell

    PIS account Transaction charges : INR 250 for Buy and INR 250 for Sell

    Short term capital gains is applicable as like Resident Indians.

    If I make 20% profit on any stock within a year, transaction charges eat way 2-2.5% and short term capital gains would take away 4% (20% of 20% profit). I can’t think what would happen if the losses are made. The net gain is 13.5% which is equivalent to NRE deposit returns without any hassles.

    Given these steep charges, does it make sense for NRIs to invest in Indian markets. Request your guidance.

  5. for NRIs in USA, the god’s gift is vanguard. looking for anything equilavent in india is a waste of time & money.

  6. @Rakesh: the problem is at 9k, people think it will still go down, may be 4k, and refrain from investing to catch the absolute low. It’s only after 1-2 years (when it was 19k) we realized that 9k was a low and should have invested at 9k itself 🙂

  7. I agree with Param. For the guys in US, Vanguard is really a gift. There is no way I can find a simple low cost Index fund like Vanguard provides.

  8. I agree with Param. For the guys in US, Vanguard is really a gift. There is no way I can find a simple low cost Index fund like Vanguard provides in India.

  9. I concur. However one of the problems with investing in low cost index funds of Vanguard is that the initial minimum investment needs to be $3000. Atleast thats what it was some time back, i might be wrong on this.

  10. Sad but most people do not understand costs in the American context. Indian index funds are available at 0.25% – it cannot get cheaper than that till volumes develop.

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