At times when markets are scaling highs, investing through diversified equity mutual funds rather than taking direct exposure in equities is sensible, declares Ashwini Kumar Hooda, Deputy MD, Indiabulls Housing Finance.

Here are more of his investment nuggets.

What do you look for when making an investment?

I look for three things when making an investment — liquidity, transparency in asset pricing and tax efficiency.

How much do you regularly set aside for investments?

A rule I have learnt from my father is to set aside 35 per cent for investments, 30 per cent for EMIs towards house/car and balance 35 per cent towards living expenses, including annual vacation.

It is something I find very intuitive and easy to implement.

Your first investment?

I made my first investment from my first salary from Tata Steel in 1997. As an engineering graduate, I did not understand equities. The interest rates on fixed deposits were very high during those times.

Thus, my first investment was in an FD, though I made the mistake of making it for five years and ended up breaking it within 12 months to fund my MBA.

What has been your best and worst investment?

Both my best and worst investments have been in equities. In 2000, I invested in a manipulated IT stock and lost more than 90 per cent value within a year.

Lesson learnt: never invest in any asset unless you are sure of its fairness or transparency on pricing.

The best investment was in the stock of the financial services firm where I worked.

What asset allocation are you comfortable with and how do you rebalance the same?

I am a firm believer in equity as an asset class. Also, due to the stock option plan of my employers, I had almost 80 per cent of my portfolio allocated to equity.

Ideally, I would have allocated about 60 per cent to equities, 35 per cent to fixed income and 5 per cent to gold. In fixed income assets, tax efficiency is very important as it is a tightly priced asset and leakages will render returns below inflation. I also invest in FMPs and long-term tax-free bonds. While I rarely move assets from equity to other asset classes, I routinely move fixed income assets to equity when there is undue pessimism around equities. So far, it has always worked well for me.

With equity markets touching new highs, is it the right time to invest in stocks now?

In any market, there are multiple stocks that will be undervalued and overvalued, irrespective of the market levels. When markets are trading at levels higher than that in the long term, the probability of making mistakes increases. At these times, I would only invest through diversified equity mutual funds than take direct exposure in equities.

What is your advice on real estate investing?

Real estate has historically done well in India over the long term. The asset class allows you to take leveraged exposures. With the cycles tending to be much longer in real estate and the product illiquid, it is important to understand that the same leverage which allows you to earn super normal returns can quickly eat into your capital, if the cycle turns and you are unable to exit the property.

How have you built your insurance portfolio?

I believe insurance is a must. I always keep a term policy equal to my next 10 years’ expected earnings minus liquid financial assets net of any financial liability.

How have you built your retirement portfolio?

PPF is a very tax-efficient instrument. Every year, in the first week of April itself, I invest the maximum limit for my wife and I. Most of the retirement options have an EET (exempt-exempt-tax) structure. I find long-term investment in equities a better option as it beats other asset classes over the long term and is the most tax-efficient too.

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