Benefits of a Diversified Investment Portfolio
About the Client Case Study
An HNI client with an investment of INR 1 crore, all of which was invested in an active midcap fund of a famous mutual fund company.
Challenges of a Non-Diversified Portfolio
The client was not aware of the risk he/she was taking to get the expected return on investment.
It was a concentrated portfolio as there was a lack of diversification between asset classes and this was the reason for a low Sharpe ratio and high standard deviation.
Building a Diversified Investment Portfolio
Billionz team understood the client’s expectations from the investments and the risk appetite to maximize their risk-adjusted returns.
A well-diversified multi-asset portfolio was created using Billionz Global’s exclusive quant model. This approach ensured that the client’s wealth was protected through a Diversified Investment Portfolio rather than depending on a single fund.
Periodic reviews were done to reallocate and rebalance the portfolio according to the predetermined weights and global market scenario.
Outcomes of a Diversified Investment Portfolio
This can be noticed in the graph below where two of the most recent crises are considered; the 2018 IL&FS default and the 2020 covid crisis.
By adopting Billionz’s quant model the client reduced the risk of the portfolio by up to 36%, which translates into a lesser drawdown of the investments in case of an economic crisis as all assets are not positively correlated.
Similarly, adopting Billionz’s portfolio, during the 2020 covid crisis the portfolio would lose its value by 15.2 lakhs and be worth 84.8 lakhs. Whereas, the concentrated portfolio would lose its value by 31.3 lakhs (almost double) and just be worth 68.7 lakhs.
When we consider the IL&FS crisis, Billionz’s INR 1 crore diversified portfolio would lose its value by just 5.9 lakhs and still be worth 94.1 lakhs. Whereas, the concentrated portfolio of the midcap fund would lose a value of over 14 lakhs and be worth 85.9 lakhs.
The client also enjoyed higher liquidity as he/she was able to withdraw funds from the asset class which had appreciated in value and not book losses in case of an emergency fund requirement.
