How It Works?
The core and satellite portfolio management is a popular form of investment strategy with money managers and their clients.
The core component of your financial portfolio, which is the larger portion of your portfolio, comprises investments that are in line with you long-term financial goals. The goals could include retirement savings, child's education, marriage, etc.
The satellite part, or the smaller portion, is invested in risky assets to boost the overall returns of your portfolio. If the economy encounters a rough weather, the core portfolio acts like an anchor to your portfolio. And when the good times start kicking in again, the satellite portion adds zing to your overall portfolio.
Asset Allocation
Asset-allocation in the core portfolio depends upon various factors like the investor's risk appetite, age, financial goals, time horizon for each goal and liquidity needs. But, broadly-speaking, here's how it works.
If you are a low-risk investor, you can look at a debt-equity ratio of 80:20.
If the size of your core portfolio is less than . 10 lakh, then the equity component of your core portfolio can comprise equity-linked debentures. For a moderate-risk investor, the equity component can be increased to 60% and the balance 40% can be put in debt. In the debt component, you can look at PPF, debt mutual funds, arbitrage funds and monthly income plans (MIPs).
If the size of your core portfolio is around . 30-40 lakh, you can look at a small property, which can be lease to earn some money from the rentals. Real estate could be coupled with debt equity split of 40:60.
If the size of your portfolio is around . 80 lakh to a crore, you can even look at leasing out a commercial property over and above the routine debt-equity exposure.
The satellite portion can accommodate small-cap/mid-cap funds, sectoral funds or global funds, which are highly risky in nature. Hence, you should not hold onto these investments beyond a year. The idea is to earn impressive returns and exit with profits.
