With increasing geopolitical tensions, individuals should consider a core-and-satellite approach that offers a disciplined framework to stay invested while managing downside risk.
The core (ideally 70–75% of the portfolio) should be anchored in large-cap and flexi-cap funds, along with a sizeable allocation to short-to-medium duration debt funds. The satellite portion (25–30%) can be tactically deployed in themes that tend to outperform during geopolitical stress — domestic consumption-oriented funds, infrastructure and capex themes, and defensive sectors like pharma and FMCG.
“Do not let geopolitical noise disrupt asset allocation discipline — use satellite positions to express tactical views, not to speculate on the market,” says Sonam Srivastava, founder, Wright Research PMS.
The final allocation will depend on the investor’s risk profile and investment horizon. As a broad starting point, a 75:25 split in favour of the core portfolio works well for most. “This allows the bulk of the portfolio to remain anchored to long-term compounding through diversified equities, while the satellite allocation provides flexibility to express tactical views and build hedges,” says Nirav Karkera, head, Research, Fisdom.
Asset mix
Within the core, 50–55% can go into large-cap or flexi-cap funds and 15–20% into high-quality short-duration or corporate bond funds. Within the satellite, 10–12% can go to thematic funds around domestic consumption or capex, 8–10% to gold ETFs or multi-asset funds, and 5–8% to international funds for geographic diversification.
For conservative investors or those closer to their goals, the core can be scaled up to 80–85% with debt taking a larger share, while younger investors with a 7–10 year horizon can afford a more equity-heavy satellite. “This allocation isn’t static and should be reviewed at least annually or when a material market event warrants a tactical relook,” says Srivastava.
Portfolio rebalancing
Rebalancing should be driven by asset allocation drift, not panic. If the equity-debt allocation of 60:40 has drifted to 70:30 due to a market run-up, it is prudent to rebalance back to the target. “If equities have significantly outperformed or underperformed relative to the intended allocation, rebalancing can help restore the desired risk profile,” says Aditya Agarwal, co-founder, Wealthy.in, a wealth management platform.
Trigger-based rebalancing works better than calendar-based in volatile markets. Setting a band of 5–7% from the target allocation and rebalancing when breached is a practical approach. Using fresh SIP contributions or lump-sum inflows to top up underweight asset classes is also a tax-efficient alternative to selling existing holdings.
With the financial year closing, investors have the option to align rebalancing with tax efficiency. This includes booking losses where necessary for tax loss harvesting and setting off capital gains, while bringing the portfolio back to its intended asset allocation.
Allocation to gold
Gold continues to play an important role as a strategic hedge within portfolios. For most investors, a modest allocation to gold exchange traded funds within the satellite portion of the portfolio is sufficient to capture the diversification benefit.