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Pranav Mazmudar uses his experience to explain where Asset Allocation is most vital. His firm has three segments of clients – HNIs, Mass affluent and Retail, all of whom he has different ways of dealing with. Retail clients are typically the most conservative in terms of their risk tolerance and intent to discuss long-term goals initially. They typically come with a fixed sum of money and a fixed investment stream which they’re confident of. Once they begin to see returns over a couple of years, they tend to start sharing and having a conversation around assets.
Mass affluent clients are well-versed with asset allocation, however tend to be weary about discussing all their assets, only discussing the small portions of assets they intend to invest in the short term. He explains Asset Allocation differs from client to client based on age. A younger client has a higher risk tolerance, which means a larger fraction of their portfolio can be put into equity. The same clients, from his experience, don’t reallocate their resources as they grow older because they’ve understood the power of equity and don’t need debt as a safety net.
He explains that enjoying your money is just as important as growing your money, which is why he often has fixed SIPs for certain clients that he puts into debt to fund short-term lifestyle goals such as a holiday. When asked if Hybrid products could play a role in introducing equity to more risk-averse clients, he explains that clients often don’t understand the concept of Hybrid products so Asset Allocation is done by separating their portfolios into Equity and Debt to gain a larger appreciation for their individual purposes.
He shares that some clients change their asset allocation over time, which used to have certain tax benefits, but not anymore since the government announced the Capital Gain Indexation. Generally clients require Asset Allocation only until they have seen a few market cycles and gain conviction of what equity can do for them.