Our investors often tell us that they wish to diversify their portfolio, but they need the right guidance to do so. Diversification has been a puzzle for most investors as it involves the complex concepts of asset allocation. To provide the best investment opportunities for our investors, we have partnered with Morningstar.
Morningstar Investment Adviser India has incorporated its asset allocation and fund selection expertise by launching Morningstar Investment Packs to be offered exclusively for the Paytm Money platform.
About Morningstar Investment Packs
There are totally 5 packs, linked to each risk profile, that a user may have. The investment packs are supported with risk suitability assessment created by Paytm Money. Once the risk profile is identified, the appropriate investment pack is recommended to the investor.
The investment pack ranges from Low Risk, Conservative, Moderate, Growth and Aggressive.
The investor has an option to invest via SIP mode with a standard minimum investment amount of Rs. 5,000 and/or lumpsum mode, where the minimum investment amount is Rs. 50,000 for each pack.
Please note that when you invest in a pack, you invest across all schemes within the pack. The investment packs will be monitored on an ongoing basis and reviewed by Morningstar.
Each of these packs has 3–5 funds, selected from the universe of Morningstar Analyst RatedTM funds.
The portfolios are diversified across large cap, mid cap, multi cap, small cap equity categories as well as debt categories like liquid, ultra short, low duration and banking PSU. The broad construct of the investment packs i.e. overall equity/debt split and the number of funds in a portfolio, is based on Morning Star’s asset allocation views and expert fund selection.
How does Diversification help your portfolio?
Diversification means investing across a mix of asset classes. Asset classes are categories of investment options that have similar risk & return characteristics. Typical asset classes include equity, fixed income or debt, cash, real estate, gold, etc. Asset class returns are likely to differ at any single point in time. Equities will sometimes have a higher return; at other times it will be bonds or even cash. It is sensible, therefore, to diversify one’s portfolio across multiple asset classes.
Asset allocation is the process of dividing investments among different kinds of asset categories, such as stocks, bonds, cash, etc. to achieve a feasible combination of risk and reward that is consistent with an investor’s specific situation and goals. For instance, equities tend to perform well in the long term (5 years and above) but can be volatile over the short term. For investors with a long-term investment horizon and at least moderate risk appetite, a higher allocation to equity would be appropriate. And for someone with a short-term horizon (3 to 5 years) a higher allocation to debt, which tends to be less volatile than equity, would be suitable. Asset allocation puts the principle of diversification to work so that when some asset classes are experiencing a downturn, others may be experiencing stronger performance.
The Mutual Fund Selection Process
The fund selection process is designed to improve the risk-adjusted returns of the investment packs by allocating capital to the most appropriate fund to represent each specified asset class. Morningstar believes that in-depth qualitative analysis which is tested and informed by quantitative analysis, lies at the core of successful fund research. Our team of investment and research analysts aims to identify funds believed to be both appropriate and high-quality.
Funds are evaluated across the five pillars that Morningstar has identified as being helpful in predicting the future success of funds, which includes Parent, People, Process, Performance and Price i.e. fund’s expense ratio. The Morningstar Analyst Rating for funds is the summary expression of our forward-looking analysis of a fund and are assigned globally on a five-tier scale running from Gold to Negative.
The universe of Morningstar Analyst Rated fund forms the base for fund selection. To that, we add a layer of quantitative parameters and create a set of funds with which the investment packs are created. This provides a diversification benefit to the overall investment pack, as there is less possibility that all the fund strategies will be alike.
Please note, the investment packs are exposed to market risk and do not guarantee the protection of the investors’ money against capital market movements.
Paytm Money Whole-time Director, Pravin Jadhav, said, “We are happy to introduce Morningstar Investment Packs to our users. Morningstar’s investment and financial expertise, which is known globally, will benefit millions of Indians and help them take informed investment decisions. Morningstar’s proficiency, combined with the simplicity and ease of our app, is the perfect blend for our existing and new investors.”
Aditya Agarwal, MD and Country Head for Morningstar in India, said, “We are delighted to associate with Paytm Money and offer our expertise in asset allocation and fund selection to their investors. Over the last couple of years, the Indian mutual fund industry has witnessed significant growth. We hope to encourage more and more retail investors to invest in mutual funds, and help them meet their investment goals.”
About Morningstar Investment Adviser India Pvt. Ltd. & Morningstar, Inc.
Morningstar Investment Adviser India Pvt. Ltd. (MIAPL) is a wholly owned subsidiary of Morningstar Investment Management LLC, which is part of the Investment Management group of Morningstar, Inc., a leading provider of independent investment research in North America, Europe, Australia, and Asia. MIAPL is a registered investment adviser, offering investment advisory solutions such as asset allocation models, portfolio construction and model portfolios to the institutional segment, comprising financial institutions, asset managers, wealth managers, portfolio managers, banks etc. MIAPL is also registered as a portfolio manager and provides research on Indian mutual fund schemes. Morningstar, Inc. offers an extensive line of products and services for individual investors, financial advisors, asset managers, retirement plan providers and sponsors, and institutional investors in the private capital markets.