Why Zerodha’s Nikhil Kamath has just 40% allocation to equity | Mint

Why Zerodha’s Nikhil Kamath has just 40% allocation to equity

Zerodha’s co-founder Nikhil Kamath
Zerodha’s co-founder Nikhil Kamath


Kamath believes that markets are expensive, has increased his allocation to gold from 2% in 2021 to 15% last year

I feel markets are expensive. Hence, I have a larger allocation for risk-free assets. Whenever there is a correction, I will rebalance my portfolio accordingly to have more equity." This was Zerodha’s co-founder Nikhil Kamath’s argument a year ago for being overweight on risk-free assets in his personal portfolio. Kamath had also increased his allocation to gold from 2% in 2021 to 15% in 2022.

A year later, Kamath’s predictions about the markets have come true. The markets have since corrected, and gold has been the best performing asset in rupee terms. Kamath, who also co-founded a category III AIF (alternative investment fund)under the firm called True Beacon Investment Advisors LLP, believes that gold has more legs and so he has been slowly increasing allocation to gold. He remains underweight on equity, at 40% of the portfolio allocation.

Kamath shared his personal portfolio details for the special annual Mint series, which started in 2020, to understand the impact of the pandemic on the personal investment portfolios of leaders in the financial services space.


Graphic: Mint
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Graphic: Mint

Asset allocation

Kamath has made no changes to his personal portfolio over the last one year. He maintains a diversified portfolio with exposure to equity (40%), debt (40%), gold (15%) and alternative asset classes such as private equity (5%), which are a bit riskier. Allocation to international assets remains nominal, “capped by limits on LRS (liberalised remittance scheme)," which allows remittances by Indian residents up to $250,000 per financial year.

He feels that the markets are still expensive and pointed out to the interest rate cycle where the cost of money is significantly higher than it used to be. “Not just that, I feel there is a housing crisis on the anvil, which might happen sometime soon. I feel real estate is really over-stretched in terms of valuations," says Kamath.

His forecast for international equities is bleak as well: international markets, including the US, are overpriced. I would not allocate more to the US at this point particularly because of the turmoil there," he adds.

In the domestic equity segment, Kamath sticks to stocks in the mid- and large-cap segments and stays away from small-cap companies. He continues to have higher exposure to risk-free assets and has slightly increased his exposure to fixed-income and gold assets. On the debt side, Kamath prefers conventional tax-free instruments and G-secs. He has never considered investing in debt mutual funds or been interested in target maturity funds (TMFs) and market-linked debentures (MLDs), both of which are popular in the high-net worth individual (HNI) segment.

“I prefer holding G-sec papers directly and I don’t like having a fund manager in between. Further, MLDs and debt funds have become irrelevant now (on the back of removal of tax arbitrage for these instruments)," he says.

Talking about allocation to real estate, Kamath says “my parents own a home. I have been a big bear on real estate for a long time, especially when it comes to India, where the yield on real estate is just about 3% on residential. With inflation and interest rates being where they are, I don’t think it makes any sense whatsoever as an investment."

As for investing in alternatives, he researches the company, the sector it’s in and the quality of management. “We have a couple of funds through which we invest in alternatives. And each one has a thesis of its own. We have something called Gruhas, which is a vehicle that looks at a lot of consumer-focused businesses and prop-tech businesses."

On an over-all portfolio level, Kamath generated Nifty-like returns plus one to two percentage points in the last one year.

Hedging portfolio

Kamath also manages investments for his elder brother Nithin Kamath, co-founder and chief executive officer of Zerodha. But there is no family office structure as such to manage the combined portfolio. “I think family offices are for inactive investors. Here, our job is only to do what the family office does. I don’t think we need that distinction," Kamath says. His brother is not too involved in the investment decisions.

Nikhil considers his almost-60% exposure to debt and gold as a portfolio hedge against the market volatility and correction. He has just 5-10% allocation to the long-short fund (that maximises the upside of markets but limits the downside risk) in the True Beacon AIF.

Does higher allocation to risk-free assets mean Kamath is focused on preservation of wealth rather than growing it? It depends on the underlying cycle, according to Kamath. “In today’s times I think wealth preservation is probably more important," he adds.

Kamath, one of India’s self-made young billionaires, maintains an emergency corpus that can cover his expenses for five years.

More towards philanthropy

For Kamath, wealth means the freedom that gives an opportunity to do things that one might not able to do without it. Kamath is not interested in ‘residence by investment’ programs, which is becoming popular with the HNI segment. Through these programs, one can obtain residency or a citizenship of a country by making qualifying investments in that country.

“The big opportunity seems to be India. People should be inward looking and not outward looking right now. We are growing faster than the West and our markets have significantly bigger opportunities," he added.

The Kamath brothers are also actively involved in philanthropy and are among India’s top 10 philanthropists. They have vowed almost a quarter of their wealth to philanthropy.

“We are doing more every year. Our contribution to philanthropy is going up and will continue to go up in future. There are a bunch of different vehicles through which we do this. To name a few, there is one around climate called Rainmatter Foundation and another focusing on education called YIPP (young India philanthropic pledge)," he added.

(Note to readers: Through this series, we try to highlight the basic tenets of personal finance such as asset allocation, diversification, and rebalancing. We do not suggest replicating the asset allocation of Kamath, as personal finance is individual-specific and differs from one person to another.)

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