Practical Implications of Asset Allocation

Asset allocation, despite its importance in portfolio management, is perhaps the last thing on the mind of the novice investor. Before regaling the virtues of asset allocation, a layman’s definition of asset allocation is perhaps warranted, so here goes: asset allocation is a process by which an investor aims to enhance the risk-reward ratio of a portfolio of risky assets. It is important to stress upon two things here: (1) asset allocation is not a one-time exercise, it is an ongoing process; and (2) the use of multiple asset classes to convert a portfolio of risky assets into a benign money-making machine.

Equipped with a basic understanding of the theory behind asset allocation what is stopping the novice investor from going ahead and enhancing portfolio returns? The reason is that the effect of asset of allocation rests largely on finding asset classes whose returns are uncorrelated with one another – the lower the correlation, the better. For instance, it is popular belief that gold is a hedge against inflation i.e. gold prices and inflation rates move in tandem. Therefore, what one loses in purchasing power is compensated by an increase in gold prices. This, however, is a long term phenomenon i.e. one may witness large deviations in the short term.

The key to benefiting from asset allocation, therefore, is to periodically tweak the portfolio for changes in correlations between asset classes and include new ones with the overall objective of enhancing the risk-reward ratio of a given portfolio. Although this may seem like too onerous a task, the novice investor need not worry. A certain level of diversification via asset allocation can be achieved by following the below steps:

  1. Ascertain whether you have surplus money to invest – a simple equation of income less expenses. The figure you ascertain will comprise your overall pie available for asset allocation.
  2. Understand your needs as defined by three key parameters viz. risk appetite, return requirements and time constraints. Your needs are a function of your age, marital status, number of dependants etc.
  3. Identify avenues to invest in the broadest categories of asset classes viz. equity, debt, commodities, real estate and alternative asset classes.
  4. Steps 2 and 3 will require a bit of periodic back and forth because the asset class(es) you choose will depend on your needs. E.g. someone with a higher risk appetite may have a higher percentage of equities in the pie than someone with a lower risk appetite. The latter investor may lean towards debt investments.

In summary, the age-old adage of not putting all of one’s eggs in one’s basket applies here. A systematic approach to asset allocation with disciplined and timely execution can ensure that investors, novice and otherwise, hold well-constructed portfolios and therefore benefit from asset allocation.

Vinay Basavaraj

Vinay boasts of a decade of experience working in both large and small organizations. His roles have ranged from sales to operations and even a stint in academia. He currently manages affairs in capital markets in Capital Float.

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The Great Indian Finance Festival (GIFF) 2017

The Great Indian Finance Festival or GIFF 2017 is an online initiative by Capital Float to offer working capital loans to MSMEs across different sectors in the country. GIFF aspires to reach out to over 10 million SMEs by offering lucrative offers on working capital finance, in a bid to bridge the credit gap that small businesses continue to be challenged by. Over the next three months, starting July 1, 2017, GIFF kicks off a one-of-its-kind loan festival that will provide Indian SMEs with the working capital support they need to diversify and scale up their businesses.

Working Capital Loans
for SMEs
Up to Rs. 10,000 PayTM gold for every loan on offer Three Long Months
Jul 1 – Sep 30, 2017
Interest as low as
16%
Disbursal in
72 hours

At GIFF 2017, you can get access to quickly disbursed, flexible, short-term loans that are typically used for the purchase of inventory, servicing new orders or optimising cash cycles. You can apply online in minutes, select desired repayment terms and receive funds in your bank account in as little as 3 days.

Products & Features:

During GIFF 2017, we will be providing three of our loan products at interest rates starting 16%:

Merchant Cash Advance Term Loan Online Seller Finance
Loan against card swipes and receivables – ideal for merchants with consistent card settlements Unsecured business loan – ideal for SMEs with positive monthly cash flow Online Sellers – ideal for those looking to expand their marketplace presence and sales
Credit: Rs 1 lakh – Rs 1 crore Credit: Rs 1 lakh – Rs 50 lakh Credit: Rs 1 lakh to Rs 1 crore
6 months – 1 year 6 months – 3 years Flexible payment options
Know more Know more Know more

Flash Sales:

In addition to the three-month long festival, watch out for short ‘Flash Sales’ throughout GIFF 2017. A flash sale lasts for three days, and you can earn up to 10,000 in PayTM gold!. Each product will feature a flash sale of its own, so be sure to visit the GIFF website regularly!

Application Process:

The entire process at GIFF 2017 is online. You need to fill up an online application and submit all the relevant documentation. If you meet the eligibility criteria and your paperwork is correct, your application can be approved within a few hours. The best part is that the loan amount will be credited to the bank account within 72 hours of approval.

GIFF 2017 Application Process

The Great Indian Finance Festival GIFF 2017 Capital Float Blog

The first step is to fill up basic details about yourself and the company such as the registered name of your enterprise, years of operation, type of company (private limited/partnership/proprietorship/unlisted), company turnover and loan amount required in the online application form. Next, upload relevant documents on the website. These documents or paperwork are necessary to demonstrate your creditworthiness and ability to repay.

Capital Float leverages technology such as big data analytics and proprietary algorithms to make quick lending decisions based on the verifiable data you have provided. Over the years, the technology and intelligence we deployed have ensured better decision-making and quick disbursal of loans.

GIFF 2017 and the  festive season

A recent Nielsen’s global consumer confidence index report showed that India’s consumer confidence score rose to the highest it’s ever been in the last 10 years. This swing in consumer sentiment even made Nielsen proclaim India as ‘a nation of determined optimists’. So, as we head into a period of positive consumer sentiment and with many major festivals coming up, the timing seems perfect for SMEs to think big.

Even though we Indians have festivals all round the year, consumer spending spikes from July to December. Traditionally, Ganesh Chaturthi, Onam, Durga Puja, Dussehra, Diwali and Christmas have been occasions for large spending by the Indian consumer. In 2016, Indian consumers spent an estimated amount of Rs 12,000 crore ($1.8 billion) online during Diwali alone. The festive season is also when the marketers spend almost 40% of their annual budget in attracting customers and boosting sales by 20% – 25%.

Timing is everything:

Cashing in on an opportunity at the right time is critical for SMEs to prosper. The upcoming festive season and a high consumer confidence score is a lucrative opportunity that smart SMEs will want to leverage for growth and expansion. Over the next few months, we will be providing our impactful working capital finance products at discounted interest rates with our esteemed promise of 3-day disbursal. Tap into this opportunity and propel your enterprise towards a busy season ahead, equipped with all that you need to succeed and #BreakLimits.

Oct 24, 2018

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Convenient Supply Chain Financing Creates Resiliency In The System

Supply chain finance is an important but often underrated aspect of supply chain management. At its core, supply chain management is the management of the flow of material / services, data and money through a network of assets from the point of origin to the point of final consumption (and back). Natural disasters, geo-political crisis and financial crisis faced by the world over the past decade have forced companies to move away from only optimizing their supply chains to making them more resilient. For a supply chain to be truly resilient, all risks associated with the asset base managing the flow (i.e. the material & services, data and money) must be negotiated intelligently, keeping in mind that each one represents a point of failure or a point of opportunity.

Industries are habituated to ignore the significance of supply chain financing. While there has been a lot of collaboration between different constituents of supply chains, they usually center on inventory. However inventory and finance are intrinsically linked; increased players in the supply chain machinery is directly proportionate to the increased complexity in the financing of the process. This is especially true in a country like India, where the number of intermediaries, in many cases outnumbering the actual value addition points, poses a complex problem from the paradigm of supply chain finance and more importantly supply chain resiliency.

As with anything in a complex supply chain, the bulk of the power resides in a few constituents (maybe the retailer or the manufacturer depending upon the specifics of the value chain). These companies understandably look out for their own interests especially when it comes to supply chain finance. Though concepts like JIT (just in time) inventory and quick turnaround times from order-to-delivery have reduced inventory levels held drastically, most companies still hold onto the traditional 30-45-60 day of credit terms with their suppliers. This puts incredible financial stress on the supplier which in the worst case manifests in poor quality of supply. In the long run, this increases the total cost of ownership for the company, i.e. investment in more stringent QC processes, returns, disruption to the manufacturing process, supplier switching costs etc. Applying the same principles of collaborative thinking to supply chain finance will not only make the overall chain more resilient but also optimize the flows and pass on efficiencies in the long run to the end consumer.

In today’s business environment where “share holder value” is no longer a buzz word but the focus of every corporate board of directors, it might be wishful thinking to expect companies to share their margins or reduce days of credit to suppliers in the interest of collaboration. This is where a third party financial institution plays an important role. By providing liquidity to the supplier on the basis of the credit umbrella provided by the bigger company, the addition of the third party financial institution creates a win-win across all stakeholders involved. This is even more critical in the case of small and medium sized enterprises, which at this point are forced to spend only a fraction of their efforts on innovation and growth.

While some large corporates do have some form of supplier financing initiatives through tie ups with Banks and NBFCs, in most cases the coverage of the initiatives are limited (to some marquee suppliers) and in a larger amount of cases are a generic form of receivable financing based on existing credit policies of the financial institutions, which are out of sync with business realities. It is imperative for large corporates to have a supplier financing initiative for all their suppliers, especially the SMEs to manage their financial risks. In turn it is imperative for the financial institution to have a tailored product which reflects the operating realities of the industry and also the specificity of the supply chain. Collaboration of all three stakeholders, i.e. the large corporate, SME supplier and financial institution will be critical to ensuring a sustainable supply chain finance program.

We live in an interconnected world; therefore large corporates have the responsibility to ensure that their SME suppliers have access to finance, if they truly want to make their supply chains resilient.

Prashant Adhurty

Prashant has 11 years of experience in business strategy and operations, with specific expertise in the areas of project management, supply chain management and business process formulation , across the retail sector, United Nations system & international organizations, telecommunications & high technology, oil & gas and 3rd party logistics. He has successfully managed and delivered projects for clients based out of Europe, the USA, Africa and India.
At Capital Float, Prashant heads Business Development for Supply Chain Financing.

Oct 24, 2018

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Successfull business tips in 2017: way to grow

Rationally encounter consequences ut that are extremely painful nor us again all is were seds anyone who loves desires.

Oct 24, 2018