Step 4 : Build a Base Portfolio

Today’s article we will discuss about step number 4 i.e. how you can build your base portfolio and why this portfolio is required and if you will follow us then you will have many benefits.

Second thing what should be the debt equity ratio and why this ratio is important

And Third thing what is the best combination of base portfolio for you and what is my portfolio and same will be shared in this article So, let’s start


Question 1 Why there is a requirement of a base portfolio


Sol: If you are doing intraday or Buy today and sell tomorrow and positional or swing trading, you might be aware that you will not be able to create a base portfolio because your requirement of capital keep changing every day but if you follow my hedging strategy we are very stable base portfolio and with that base portfolio we can earn some income so only in case of hedging is possible when you invest your capital in good mutual fund or good stock, they can give you return of 15% to 20% nearly and top of that just by pledging them you can margin and you can do F & O and get extra 12 % to 15 % without brining any additional capital. So, the loss in doing the trading in Intraday or Buy today and sell tomorrow and positional or swing trading, whatever you made from trading that is the only you benefit, you do not have any base portfolio so there is no base return.


So, if you want a return of 24% then you have to make all you have to invest in intraday but through hedging strategy, you just have to invest 12%. If your return requirement is less, your risk loss will also be less. It’s very simple. So here we target only for 12% because with 12% given by our base portfolio which is less risky so we will be safer and in long term we will make more money so friends that’s why you have to build base portfolio if you are following my hedging strategy using future and options.


Question 2 what should be the debt equity ratio


Sol: If you are going to pledge, then debt equity ratio should be 50% each so 50% you should invest in debt mutual fund, liquid mutual fund or cash portion you have to keep it or you can make a FD as an instrument which you can pledge.


If you want to keep 50% in equity segment then you can keep it in shares or index mutual fund or you can invest in equity mutual fund so this way your portfolio looks always because when you going to get the margin 50% you should have in equity and 50% in debt.

Now you can have 100% in liquid fund. It’s possible but you cannot have 100% in shares, because SEBI says that already you are in very risky proposition and further you are pledging the same so it will become very risky that is why 50% should be pledged from cash portion and such cash portion comes from investment in debt fund or FD or hard cash in your Demat Account. Now if you are going to buy option for hedging purpose then you have to keep hard cash. So generally, we follow 20% as hard cash, 40% in debt fund and 40% in equity segment.


Question 3 what shares or mutual fund can be pledged? Can all shares or mutual fund be pledged?


Sol. No, as I discussed with you in previous article, first thing you should bring down the number of shares and mutual funds because if you have 50 shares in your portfolio and 50 mutual fund then it will be very in cumbrance for pledging so maximum you should have 2 to 3 good shares and maximum 1 or 2 mutual fund that will be easy to pledge.


Now here, the name of shares which can be given for non-cash component i.e. basically the equity component and other is cash component. The list of the same can be checked from Zerodha website. Zerodha will also specify the margin you will get. There are some funds in which suppose you invest 1 lakhs then 92000 margin you will get for pledging.

Link for the same is https://docs.google.com/spreadsheets/d/1vRI4NKpJ-3mnOWxUhSRMSQD5txy8QNumzSQrdfGKyL0/edit#gid=0

Every broker may have this list, you can check it with your broker and you can go through and buy any of them.


Question 4 What is the best combination?


Sol. In debt and equity ratio, you can plan your portfolio as per risk taking and return. Now, one combination you have, if you are going to have options also, then you can have the following combination


Combination 1 Percentage

Nifty ETF 40%

Liquid Fund 40%

Cash 20%


Nifty ETF is an mutual fund and you can buy any mutual fund house, the combination should be the same. Only you have to check the whatever the mutual fund you are buying, the same should give you the lowest expense ratio.

Example of Liquid mutual fund is L&T Triple ACE bond fund, this fund is giving a nice return for so far so we have use that. Then you can keep Cash portion

So, whether you are using buying option or selling options this will be the best combination.


Combination 2 Percentage

Nifty ETF 20%

2 to 3 Stocks 20%

Liquid Fund 20%

Bharat Bond 20%

Cash 20%


In this combination, you can also use 20% of funds in 2 to 3 stocks like Reliance, HDFC life , Asian paints, Tata motors and my minimum investment in one stock should be at least 1 to 2 lakhs rupees.


In liquid fund, you can keep as L&T as discussed above.

Now let me tell you my combination


Nifty ETF 25% SBI

Nifty ETFStocks 25% Reliance, HDFC, AMC, Asian Paints, Tata Motors

Liquid Funds 25% L&T Tripple ACE Bond fund


I use this combination of funds which gives me a healthy return. You can also check other benefits available in Zerodha website. I personally recommend it. So friends, hope this article will be useful to you.

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