Diversify Portfolio by Having Companies of Different Sizes: Rachit Chawla, Founder, Finway

It is not easy to grow money. It is even more difficult to understand how to diversify investments to yield maximum results. In an interview to Outlook Money, Rachit Chawla, Founder & CEO, Finway and a Registered Financial Adviser with SEBI highlighted few such points that will help people plan their investments well.

1. How would you suggest people to diversify portfolio this financial year?

One should diversify portfolio by having companies of different sizes and industries, investing in index funds that contain dozens of stocks. Consider making other investments such as purchase a rental property or purchase real assets.

2. Which are the investments one must make in their 30s for wealth creation?

First, pay off all your debts if you are in 30s. So if you are planning to invest in something and get 7% annual return, you should think of ways to avoid 15% accrual of interest on credit cards. Secondly, buy a house in 30s. Though it is a complex process, it is financially advantageous in markets that have reasonable prices. By doing this you will you will building equity instead of spending money on rents.

Thirdly, you should take advantage of tax-advantaged accounts as these accounts will you work towards your retirement. If you have an offer from your company of a 401(k) with a company match, then you should max out that match as it is free money. Fourth, in these tax-advantaged accounts you should invest in stocks including stock-based index funds. Fifth, have some bonds in your portfolio as they are much safer than stocks.

3. Is index funds, ETFs are better than large-cap funds? Why?

Over a year of time the focus of many mutual fund investors is index funds and exchange-traded funds (ETFs) in the large-cap space. It largely happened because of the poor performance of actively managed large-cap mutual funds. I would also recommend index funds as it is becoming difficult for the fund manager to generate alpha there. One can also put lump sum money in ETFs, while those seeking to invest by using SIP should go for index funds. One of the reasons that fund managers will not be able to generate alpha because large-cap have to allocate 80 % of their portfolio in the top 100 stocks by market capitalisation after the new Sebi categorisation norms will kick in. 

4. You plan to grow your company from Rs 35 crore now to Rs 1,000 crore company in 3 years. How?

By adding value added services like insurance, wealth management, co-lending with other financial institutions and expanding our network of customers directly as well as through agents.