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Why Zerodha’s co-founder is now looking at risk-free assets


Nikhil Kamath, co-founder of Zerodha and True Beacon, said that he is very bullish on gold. He increased his portfolio exposure to the yellow metal multi-fold, from 2% a year back to 15% now.

Kamath, who reviews his asset allocation every month, said that he is trying to add as much gold as possible. In response to a question about inflation-beating investments, he said that it is “impossible at the pragmatic inflation rate today”.

Kamath shared his personal portfolio details for the special annual Mint series, which started in 2020, to understand the impact of the pandemic on the personal investment portfolios of leaders in the financial services space. The series tried to understand how respondents’ investments have fared, the changes made to their portfolios, and the investment lessons they have for investors.

Asset allocation

Kamath maintains a diversified portfolio with exposure to equity (35-50%), debt (35%), gold (15%) and alternative asset classes such as private equity which are a bit riskier (10%). Further, 2% of his equity allocation is international, which he wishes to increase if there are no limits.

“I am a fairly conservative investor. Right now, I feel like markets are expensive, hence I have a larger allocation towards risk-free assets. Whenever there is a correction, or something changes significantly, I would rebalance to have more equity in the portfolio. At this point in time, for me, to have a really hedged portfolio with exposure to risk-free assets becomes extremely important,” said Kamath.

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Mint 

His equity and alternative asset classes were the highest return generating assets for him at 15% in the last one year. Kamath took advantage of the great stock market rally in 2021 by booking profits on equity holdings.

In terms of international investing, he added, “I am leaning more in the direction of China today; a year or two ago, it was the US. Because of how beaten-up China is based on the way the government reacted against tech companies over the last year, I think, value is starting to emerge in China.”Over the last year, while allocation to the gold asset class was increased, he trimmed exposure to his debt portfolio, which comprises tax-free bonds and g-sec instruments.

Conservative approach

Kamath, one of the self-made young billionaires in India, maintains an emergency corpus that can cover his expenses for five years.

“It’s possibly a lot longer than five years. While we have gotten a little bit lucky in the business in the last few years and made a reasonable amount of profits, I don’t think, the lifestyle has changed relative to that. I still live fairly frugally,” Kamath added.

He is also a conservative investor when it comes to his retirement corpus. He said that he prefers 40:60 asset allocation towards equity and debt respectively, for building wealth for the silver years.

Takeaway

Kamath’s portfolio reveals that diversification across asset classes and reviewing them periodically are the key aspects of managing investments. Another key takeaway is that everyone must maintain enough contingency funds to handle unexpected scenarios.



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