ABC Framework

Jun - 2024
The Problem…

1. ‘News Headlines’ Based Decisions

2. ‘Past Returns’ Based Decisions

3. ‘New Shiny Toy’ Based Decisions

A – Asset Allocation
Asset Allocation – The Key Driver of Long Term Returns

Extensive research shows that,

If you have a diversified portfolio, a whopping 88% of your experience (the volatility you
encounter and the returns you earn) can be traced back to your ASSET ALLOCATION!
 Rebalance to stay the course - don’t “set it and forget it”

As markets shift, so do allocations. Without rebalancing, overtime you can become overexposed to unwanted risks

Create a rebalancing policy:

Rebalance when allocation deviates by +/- 5% - once every 6/12 months
What to expect in your investment journey?

Simple Asset Allocation & Rebalancing for ~90% of your

Investment Journey

The remaining 10% of the time calls for…

• Bubble Plan
• Crisis Plan
B – Bubble Market Plan
Three Signal Framework – NEUTRAL VIEW

EARNINGS
VALUATION SENTIMENT
CYCLE

Mid Phase of Earnings

Cycle – high odds of ‘Very Expensive’
‘NEUTRAL’
above average Valuations Sentiments
earnings growth in
the next 3-5 years

THREE SIGNAL FRAMEWORK

How to prepare?

Pre-decide a portion of your Equity allocation (B) to be deployed into Dynamic Asset
Allocation Funds if there are signs of Bubble

We continuously track for signs of bubble via our Three Signal Framework and Bubble
Zone Indicator (which tracks 30+ indicators)

• Trigger 1 (MARGINAL UNDERWEIGHT) - can happen if Valuation moves from ‘EXPENSIVE’ to ‘VERY
EXPENSIVE’ & Sentiment turns ‘Euphoric’

• Trigger 2 (UNDERWEIGHT) - We don’t see the likelihood of UNDERWEIGHT in the near term, as we are
still at the mid phase of Earnings Cycle

Action Point:
If Trigger 1 cuts, we will intimate you so that you can shift 50% of your Bubble Plan amount to
Dynamic Asset Allocation Funds.

*The amount moved can be reverted from DAAF to Equity when the market reaches its previous peak
C – Crisis Market Plan
 Prepare a ‘Crisis’ plan – Using Triggers

Pre-decide a portion of your debt allocation (say Y) to be deployed into

equities if in case market corrects

• If Sensex Falls by ~20% to 56,000 – Move 20% of Y into equities

• If Sensex Falls by ~30% to 49,000 – Move 30% of Y into equities

• If Sensex Falls by ~40% to 42,000 – Move 40% of Y into equities

• If Sensex Falls by ~50% to 35,000 – Move remaining portion from Y into

equities
*The shifted amount can be moved back from Equity to Debt when the market reaches its previous peak levels

Note: This is a rough plan and can be adapted to your individual preferences, risk profile and cash flows; Assuming current Sensex peak levels of 70k
The entire plan is captured in a unique six digit number…
What is the FundsIndia Portfolio Number?

The FundsIndia Portfolio Number is a unique and simple representation of your portfolio
strategy.

6 Digit ABC Number: AA - BB - CC

• Asset Allocation via AA - represents the Equity Allocation in the Base Asset Allocation

• Bubble Market Plan via BB - represents the Equity Allocation (represented as a % of overall
portfolio) which will be moved to Dynamic Asset Allocation Funds when our Three Signal
Framework shows a Bubble Warning

• Crisis Plan via CC - represents the Debt Allocation (represented as a % of overall portfolio)
which will be moved to Equity during a market crisis (i.e. a fall of more than 20% from peak)
ABC Framework Plan
 E.g. 30% Equity + 70% Debt Allocation | ABC No: 30-10-30

EQUITIES: 30% Allocation DEBT: 70% Allocation

Rebalance Annually for +/-5% deviation

Buy and Hold Bucket: BUBBLE Plan :

CRISIS Plan: 30% Remains in Debt: 40%
20% 10%

20% Fall 30% Fall 40% Fall 50% Fall

Trigger 1 Trigger 2
Revert when the
market reaches its
previous peak
Dynamic Asset
Allocation Equity Funds
Funds

Note: This is a rough plan and can be adapted to your individual preferences, risk profile and cash flows
 E.g. 50% Equity + 50% Debt Allocation | ABC No: 50-20-30

EQUITIES: 50% Allocation DEBT: 50% Allocation

Rebalance Annually for +/-5% deviation

BUBBLE Plan : Remains in Debt:

Buy and Hold Bucket: 30% CRISIS Plan: 30%
20% 20%

20% Fall 30% Fall 40% Fall 50% Fall

Trigger 1 Trigger 2
Revert when the
market reaches its
previous peak

Dynamic Asset
Equity Funds
Allocation Funds

Note: This is a rough plan and can be adapted to your individual preferences, risk profile and cash flows
 E.g. 70% Equity + 30% Debt Allocation | ABC No: 70-30-30

EQUITIES: 70% Allocation DEBT: 30% Allocation

Rebalance Annually for +/-5% deviation

Buy and Hold Bucket: 40% BUBBLE Plan: 30% CRISIS Plan: 30%

20% Fall 30% Fall 40% Fall 50% Fall Revert when the
Trigger 1 Trigger 2
market reaches its
previous peak

Dynamic Asset Allocation

Equity Funds
Funds

Note: This is a rough plan and can be adapted to your individual preferences, risk profile and cash flows
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