imgbd Mr. Dependable

Amit's unique 3-D asset allocation model is an eye-opener

CA Amit Jain, Jaipur

Amit Jain is a strong believer in processes for all aspects of his business - advice, client engagement and service. His processes are at the heart of his dependability - as they showcase to his clients all the four pillars of dependability: consistency, integrity, responsiveness and diligence. Little wonder that he has rapidly risen to become one of Jaipur's leading IFAs, serving over 2000 clients, with an MF AuM in excess of Rs.180 crores. Check out Amit's unique 3-D asset allocation model - it is quite an eye-opener in terms of marrying strategic and tactical allocation into a single template. Amit shares his business model through the framework of the four pillars that Mr.Dependableepouses: consistency, integrity, responsiveness and diligence.

Click here to know more about the 4 pillars of dependability


Consistency in the advice we give - to all customers - and across all points of time - is the most important aspect that builds trust and confidence, and which enables us to be seen as dependable by our clients. In order to ensure the highest level of consistency in our advice delivery and our client engagement, we have embraced three key philosophies:

  1. A logic based three dimensional asset allocation template, and

  2. A white-list of limited number of funds in each category - which will be the only ones recommended by anyone in our team to any client

  3. Defined frequency of client meetings based on a six point scale

1. Three dimensional asset allocation template

We have combined the two dimensional strategic asset allocation with a tactical asset allocation model to create a unique 3-D asset allocation template. This template has three variables:

  1. Risk profile of the customer

  2. Time horizon

  3. Market P/E levels (this is the tactical overlay that is combined with the first 2)

Let me explain how this works, with an example.

Case I


We have three broad risk profile based categories - conservative, moderate and aggressive. For each of these categories, we start with a minimum allocation to debt and equity - which we will endeavour to have at all times, irrespective of market levels. So, for conservative investors, we will always have a minimum of 10% in equity and a minimum of 50% in debt. The actual composition beyond these thresholds will be a function of time horizon and market valuations.

In the example above, we are considering an asset allocation to be done for a moderate client, on a date when the Sensex P/E is at 15 - ie in green zone. His time horizon is 3-4 years. So, we start off with a base case of 30% minimum in equity and 30% minimum in debt. The question is how to allocate the balance 40%. If you look at the timing adjustments table, we allocate more to debt for shorter time horizons and less to debt for longer time horizons, with 5 years as the neutral allocation zone. In this case, a 3-4 year bucket for a moderate risk profile means stepping up debt by 20% beyond the minimum - which brings us to 50%.

The P/E level on the date of the allocation being 15 and therefore in green zone, means that we can consider stepping up equity allocation from a minimum of 30% to as much as 66% - ie that we can tactically allocate upto 33% more to equity beyond the minimum. However, since the minimum debt allocation based on time horizon is 50%, equity cannot go all the way to 66%, and is therefore restricted to 50%.

Case II


If we were however doing an asset allocation for the same customer when market P/E is 21, we will arrive at a different asset allocation. The minimum allocation to debt has been stepped up from 30% to 50% as explained in Case I. To determine how much equity to allocate, we look at the P/E which at 21, is in red zone. Red zone indicates that we can tactically allocate only 13.33% more to equity beyond the minimum. Equity allocation therefore is 30+13.33 = 43.33% and the balance 56.67% goes to debt.

Case III


If this moderate profile customer had a time horizon of 10 years+, the picture alters significantly. The minimum allocations to equity and debt remain at 30% each. The timing adjustment table suggests that for 10 year + time horizon, we can reduce the minimum debt allocation by upto 20% - so it can go down from 30% all the way to a minimum of 10%.

The market P/E on the date of the allocation is 15 - ie green zone. Tactically, this suggests that we can add further upto 46.67% equity over and above minimum allocation of 30% - ie, 76.67%. This now becomes the maximum equity allocation and therefore the balance 23.33% goes to debt.

As we all know, longer time horizons and cheap valuations are great for equity investing - and our model captures that using a scientific and logical basis.

Case IV


In case IV, the only change to case III is that the asset allocation is now being done when market valuations are above 21 - ie in red zone. Tactically, the model suggests that we must add only 18.67% to equity above the minimum of 30% - even though the time horizon is 10 years+. This means that equity allocation is restricted to 48.67%, with the balance going to debt.

Time horizon alone cannot be a guide to allocate more towards equity. When markets are expensive, the journey is going to be bumpy over the next 10 years, and only few investors actually can withstand large bouts of volatility. Therefore, a tactical allocation overlay, which checks the allocation to equity in times of high valuations, protects clients through their journey.

When we take customers through our asset allocation tables, they see a well thought through, process driven approach towards asset allocation, which builds confidence. Once they are on board using this process, future conversations around rebalancing become very simple - because we simply pull out our asset allocation tables, update for current valuations and revised time horizons (if any) and we have an updated allocation - on the same principles. This makes decision-making very simple.

2. Fund selection

For the next step, which is fund selection, we have a published white list of select funds with in-house star rating for each asset class. Our team is free to select funds from within this white list, sometimes client preferences are also taken for this - but funds outside our recommended list are a no-no for us. This ensures that funds that we finally invest in, are all good funds with strong track records, which have been well researched by us.

3. Client engagement frequency

We have a six point rating format, where every client is slotted into 6 star to 1 star - based on portfolio size, portfolio complexity, growth prospects and so on. Our six star clients have to be met in person twice a month, whereas for a 1 star client, an annual meeting is what we mandate. I track client interactions very closely based on this template. I don't track business done - I track engagement. We simply have to go and meet clients at the agreed frequency - whether or not there are any prospects for new business to be transacted. My firm belief is that if I track engagement diligently, business will automatically come. And this has proved to be true for us.

Integrity and diligence

Talking of integrity and diligence, our process and the faithfulness with which we adhere to it is the best demonstration of integrity and diligence. I also routinely show my own portfolio to my clients - when they see that I am managing my own money exactly the same way as I manage theirs, it boosts their confidence tremendously.


This is a very big priority for us. We have a system where every service issue that comes in from clients - whether a phone call or a visit - gets a new job card opened with a tracking number assigned to it. Based on the nature of the service issue, there is a defined TAT, which is then tagged to this job card.

What I track is closure of job cards within defined TATs and I monitor every exception very closely until resolution. This focus ensures that we are always responsive to client needs. It is not enough to advice diligently - one has to also be equally diligent on the service aspect, to win clients' trust and confidence, to be seen by them as dependable allies.

Beyond business

For me, beyond serving my clients and growing my business the right way, what gives me the most satisfaction is spreading financial literacy. It is the small investor who really needs advice most - and wherever I find an opportunity, I do my bit. Even the caretaker of my home is now financially literate and has started an equity SIP at my insistence. I know 10 years from now, he will bless me for this effort, when he sees how his SIP has grown. His "dua" is worth more for me than any business achievements.

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