Our experience suggests that trying to time the market is fraught with uncertainty, with a high probability of being wrong 99% of the time,” says Deepak Shenoy, founder and CEO of Capitalmind. “I view buying bonds as a sound tactical move, particularly in the current market environment where interest rates are expected to decline,” adds Shenoy in an interaction with Mint for the Guru Portfolio series. In this series, leaders in the financial services industry share how they manage their own money. Edited excerpts from the interview:
Our experience suggests that trying to time the market is fraught with uncertainty, with a high probability of being wrong 99% of the time,” says Deepak Shenoy, founder and CEO of Capitalmind. “I view buying bonds as a sound tactical move, particularly in the current market environment where interest rates are expected to decline,” adds Shenoy in an interaction with Mint for the Guru Portfolio series. In this series, leaders in the financial services industry share how they manage their own money. Edited excerpts from the interview:
What is your current asset mix?
Currently, my investment portfolio is primarily focused on equity and debt instruments. I don’t hold any gold or real estate investments at the moment. Approximately 75% of my portfolio is allocated to equity, while the remaining 25% is diversified in arbitrage funds. Within this allocation, there’s a small portion of around 2% allocated to opportunistic debt, such as direct government bonds or GILT mutual funds.. However, I’ve been cautious with debt investments due to changes in taxation laws, particularly since the removal of indexation benefits. While my equity exposure used to be higher, I’ve adjusted it to 75% due to upcoming liquidity needs related to my son’s college expenses. Going forward, I plan to increase my international exposure through a portfolio management service (PMS), which will allow Indian investors like myself to access overseas markets.
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What is your current asset mix?
Currently, my investment portfolio is primarily focused on equity and debt instruments. I don’t hold any gold or real estate investments at the moment. Approximately 75% of my portfolio is allocated to equity, while the remaining 25% is diversified in arbitrage funds. Within this allocation, there’s a small portion of around 2% allocated to opportunistic debt, such as direct government bonds or GILT mutual funds.. However, I’ve been cautious with debt investments due to changes in taxation laws, particularly since the removal of indexation benefits. While my equity exposure used to be higher, I’ve adjusted it to 75% due to upcoming liquidity needs related to my son’s college expenses. Going forward, I plan to increase my international exposure through a portfolio management service (PMS), which will allow Indian investors like myself to access overseas markets.
What is the global split of your portfolio?
As of now, approximately 97% is invested in Indian markets. The remaining 3% is allocated to international markets through Indian mutual funds. However, direct investment in the US poses challenges due to tax implications. For instance, upon an individual’s demise, assets exceeding $60,000 are subject to a hefty 40% tax before being transferred to heirs. This taxation applies to both non-resident Indians (NRIs) and Indian residents. Similarly, US residents and green card holders face a similar tax on assets exceeding about $4 million. To address this issue and expand international investment opportunities, we’re awaiting the introduction of new financial products. In fact, we’re in the process of launching a PMS that will enable us to invest in the US without being subjected to heavy tax implications.
How do you invest in global funds?
We access global markets through funds like PPFAS Flexicap Fund, which we’ve held for quite some time. Additionally, we include Nasdaq 100 ETFs in our PMS investments. We’ve also invested in Motilal Oswal Nasdaq 100 ETFs and a few other international funds to diversify our global exposure.
What has been your portfolio’s performance in the past year?
It has given about 49.1% returns.
Where are you investing in now?
I am investing 90% of money in equity, mostly in my own PMS portfolios, 10% in debt due some near-term personal expenses
What is your view on GIFT City exchange?
It offers opportunities for investors to access global markets with greater ease. We’re in the process of setting up some of our funds there. GIFT City facilitates investments outside India more seamlessly, attracting NRIs and foreign investors to participate in the Indian market through various investment vehicles. One significant advantage is the simplified process compared to the traditional method of investing abroad through LRS (Liberalised Remittance Scheme). Additionally, the exchange allows for funds to be raised internationally and invested abroad, bringing in foreign capital to India and promoting international diversification for Indian investors. Overall, the GIFT City exchange offers less complexity, enhanced feasibility, and clearer taxation frameworks, making it an attractive option for global investing.
What is the allocation to equity in your total portfolio?
Almost all my equity investment is in my own PMS portfolios, 99%.
Have you made any changes to your portfolio in the past one year?
Over the past year, we’ve made several adjustments to our portfolio strategy. One significant change involved reallocating the majority of our index investments into my PMS. Additionally, we’ve shifted our focus from debt funds to arbitrage funds due to the more favourable taxation environment, especially with the removal of indexation benefits on debt funds. While existing debt investments have been retained, any new allocations are directed towards arbitrage funds exclusively. Furthermore, we’ve opted to stay away from making market cap or theme-related changes in the portfolio, as we believe their impact on overall returns is minimal given the constantly shifting landscape of market performers.
What is the one strategy that worked for you and one that did not in the past year?
A successful strategy for us in the past year has been maintaining discipline and staying invested. Additionally, having liquidity on hand proved advantageous as we could deploy it during the market downturn in last March-April. As PMS managers, our skills and research led us to take a bullish stance on India outperforming the global market, which paid off well. Constructing a well-diversified portfolio based on our experience and insights, we strategically invested in sectors such as defence, railways, domestic manufacturing, certain areas in consumption, and selected financials, all of which contributed positively to our performance.
However, one strategy that did not yield favourable results was attempting to time the market. Despite frequent inquiries about selling when markets peak, we found market timing to be largely ineffective and a waste of time. Our experience suggests that trying to time the market is fraught with uncertainty, with a high probability of being wrong 99% of the time.
What is your debt investment strategy now?
I have replaced my short-term debt investments to arbitrage funds as they are more favourable in terms of tax and direct investments in government bonds. I view buying bonds as a sound tactical move, particularly in the current market environment where interest rates are expected to decline. Investing in bonds allows for potential capital appreciation, with the added benefit of favourable tax treatment. In bonds, the long-term capital gains which is applicable after holding it for a year or more, gains are taxed at only 10%, or 20% with indexation benefits, compared to debt funds where gains are taxed according to one’s income tax slab.
I also have gilt funds for my extremely long-term investments. I don’t want to take any credit risk right now. Some high yield AIFs (alternative investment funds) offer better returns but then they have their own issues like liquidity and default risks.
What are your financial goals?
At present, my major financial goals revolve around my children’s education, as well as ensuring my retirement plans remain on track. Recently, I had the opportunity to travel to Australia for 15 days during winter, and I aspire to explore several other destinations and take more time off while my children are still young.
Additionally, my primary financial focus is on building my company. I see it as the most valuable endeavour I will ever undertake. By dedicating myself to growing this business, I aim to secure my financial future without relying on any other source of income.
Have there been any recent changes in your health and lifestyle?
Yes. I have started my weight loss journey, setting a personal challenge to lose 14kg by November . Alongside, I’ve been focusing on adopting a healthier diet, paying attention to the intake of essential minerals and vitamins, as well as adhering to strict timings for having meals. Additionally, I plan to prioritize regular health checkups throughout the year
I have started playing squash. I go to the gym a lot more now. My lifestyle has become more organized now. Earlier my commute used to be 90 minutes. Now, I stay much closer to the office. It takes me about 20 minutes to reach office now.
Any plans for investment in real estate?
I don’t view real estate as an investment per se. For me, a house is primarily a place to live, similar to owning a car for personal use. Beyond that, I don’t have much interest in real estate as an investment avenue.
Regarding commercial real estate options like Reits (real estate investment trusts), while these aren’t inherently a bad idea and function more like debt funds, the current structure of Reits in India isn’t particularly conducive. They tend to focus more on generating rental yield rather than capital appreciation through property sales. As such, while there may be potential, it’s not a straightforward investment in real estate in a true sense.
What are your biggest money learnings over the years?
Retirement is not about not working. It’s about making enough money so that you don’t have to work. Don’t make predictions, nobody knows what is going to happen. If you stay invested, you will make money. I can say this with my own investment experience.
What is your advice for a new investor?
As a new investor, you need to understand that the markets are volatile. If you balance your portfolio with equity and debt, your expectation from debt should not be more than 6% or roughly inflation-linked returns. On equity, you should expect a nominal GDP kind of a return—so, if your economy grows at 6% and if the inflation is at 6%, then 12% is the rate at which your portfolio will grow in the long run. Although you might see huge drawdowns and high returns in some of the years, this is how much a new investor should expect if you get more. It’s a bonus. Do not expect markets to perform the same way as they have performed in the past.
As a new investor, you will get attracted to things making a lot of money in options trading but you need to understand that it requires a lot of discipline and effort. Put a small amount or as much as you can afford to lose and see if it is meant for you. I would rather recommend starting with the easy path like mutual funds.
What has been your biggest FOMO (fear of missing out) moment of the past year ?
In the past year, my biggest FOMO moments haven’t been so much about market trends, as those fluctuations are inevitable. Instead, my FOMO has centred more on personal life aspects, particularly how I allocate my time. I often feel like I need to spend more quality time with my family, going on more trips, and improving my approach to business.
I’ve come to realize that there will always be a better opportunity. While market-related FOMO will always be there, you can’t keep buying anything randomly.
