Beyond Equity: Jiraaf’s Saurav Ghosh on how to customise your portfolio, and the importance of bonds

Kshitij Anand: Hello and welcome to the ET podcast. One theme which generally gets overlooked when we talk about building wealth is passive investing. And yes, we're talking about bonds, usually considered conservative products. So how did that become personal to you?

Saurav Ghosh: When I started my investment journey, my salary and regular SIPs were my entire portfolio. A few years later, I realized that equity is not solving everything; money was needed to solve problems in my personal life. I had multiple use cases of what I wanted to do with my money.

That's when I started understanding what bonds are. I was a part of the financial market. So I had a basic understanding, but that's when I got deeper into it. And I realized that bonds are what I was actually looking for. I understood they could give me that liquidity, a passive income, and a regular cash flow.


What gravitated me further towards bonds is my belief that life is not all about building long-term wealth. We also need to plan on a month-on-month basis, on a year-on-year basis, to achieve our short-term goals. That is when bonds became personal to me, and I started building a stronger portfolio with them.

Kshitij Anand: As they say, smart money works for you. Tell me, how did that come along? Your portfolio not just stayed as it is, but it also grew and generated monthly returns for you?

Saurav Ghosh: I wanted to build long-term wealth when I started out my career, at 27 or 28. Back then, I was earning around one lakh rupees, per month, on a post-tax basis, with an expenditure of around 60 thousand and the rest into SIPs.

Then came this one bulky, unforeseen expense-a travel or construction expense- and I realised I was either not investing that month or withdrawing money from my investments. This was against my understanding of long-term compounding, and it prompted me to look at other ways to have that flexibility beyond my salary. The questions I asked myself were: can bonds give me that regular monthly income or a regular cash flow? And then I have my salary at the end of the month, which lets me decide whether to have an additional SIP or do I invest in a few months because the market was not good?

I liked the answers. I liked the flexibility, which I subsequently added to my portfolio.

Kshitij Anand: How do you describe your personal investment philosophy?

Saurav Ghosh: An important thing I have realised with all this time in the industry is that there is no one size-fits-all. For me, it is all about customising the portfolio as per my needs. As I said earlier as well, it is not just about creating long-term wealth; it is also about living life on a daily basis. Achieving the short-term goals we have.

Of course I need to plan for a decade or 20 years down the line, but I also need to plan my next day, my next month, my next year. I have goals for each of these timelines. It is about ensuring that my portfolio caters to both my short-term and long-term goals.

There's a term called bucket strategy that people use, each one of them differently. For me, I have different parts of my financial portfolio allocated to different goals I have. For instance, if I want to buy a house in, let’s say, three years, I will have a part of my portfolio allocated to that. Or a retirement corpus in mind, which will have another part allocated to it. Another part for the daily and monthly expenses, so on and so forth.

A lot of my learning has come from the time when I had to also deal with my monthly expenses without a salary. I kind of realized what the power of a regular cash flow passive income is. A bond portfolio can give you that power!

Kshitij Anand: Interesting. Let us in on this. How do you divide the portfolio? How does the allocation work?

Saurav Ghosh: I look at my portfolio in three categories. One is the growth category, which is building towards my long-term portfolio. The second one is an income category, akin to adding to my salary or passive income. This additional income goes towards meeting my expenses or reinvestment. The third one is liquidity. I like to have money in my savings account, which I can use any time, maybe for an emergency or anything for that matter.

On the growth investment front, I don’t even need to look at the money for the next ten or twenty years. I let myself be active on the income part though, with the flexibility of managing that portfolio. This is the money which is going to mature in one or two years, and help me meet my short- to medium-term needs.

Kshitij Anand: Talking about portfolios, have you curated your one crore bond portfolio? And how have you designed it to make sure that it's actually meeting your monthly needs?

Saurav Ghosh: You should first start with defining your goals. That is the important step. I had a goal. I had an understanding of my monthly expenses. I wanted to ensure that my monthly payout or cash flow is at least meeting my house rent, for instance. That takes away a bulk of my regular monthly expenses. So I wanted to beat inflation and at least generate enough cash flow to pay my rent. These were my two primary goals. I designed my portfolio around these goals.

The third consideration was risk protection, which led me to diversify my portfolio, regardless of my risk appetite. To give you an overview of my portfolio today, 10% is in the very short term, three to six months, and acts as a liquidity buffer as well. I do treasury bills and government bills over short-term Fixed Deposits (FDs). The former are safer and give more returns than FDs in large banks.

About another 20% of my portfolio is in safe assets, which is AAA rated papers. Typically, these papers are two, three, or four years, and they give me about eight to nine percent return pre-tax. This 20% also gives me that sense of balance in the portfolio, given that I invest in high-quality, AAA-rated names.

The remaining 70% is where I try for growth. I find a lot of A-rated papers which are fairly moderate in terms of risk. In fact, safe to moderate is where I would put it. I'm able to get about 11 to 12 percent pre-tax. This part of my portfolio is the core anchor, in terms of risk and return, around 35% of my portfolio. I'm very comfortable staying invested in the triple-A- to A-rated names even for two, three years.

The balance 35 percent is where I'm trying for growth, you know, which is more in the range of 13 to 14 percent return, which is more in the BBB-rated category. So this is where I'm taking a bit of risk. But what I do is, in the BBB-rated category, I invest in shorter maturities, typically up to 18 months. I can then choose whether I want to reinvest, carry on the same risk, or not.

Kshitij Anand: What is the kind of return or money could one expect every month to flow in from a portfolio design like that?

Saurav Ghosh: In my case, as I said, it gives me about 11% return. Which means on a one crore kind of bond portfolio, I make 11 lakh annually, which is just short of one lakh a month. I think that was the goal. For an average individual, slightly more risk-averse, I think 9 to 10% is something you can easily buy because then you don't need to maybe do the triple B-rated assets. You can be more concentrated towards triple A to A and still achieve 9 to 10% very easily. I would say if you're younger and you have a high risk appetite, even doing 11 to 12% is also pretty easy to do. You need to have exposure to the triple B category, which in India is still fairly safe. But you need to understand the risk before you invest.

Kshitij Anand: You mentioned AAA, AA, or BBB bonds. For investors to understand what it really means and why one should track these bond ratings for portfolio investments?

Saurav Ghosh: I'll take an example from the equity market because I think we are all more well-versed with the equity market today. Think of it as a large cap, medium cap, and small cap kind of portfolio. So your AAA, AA are like large-cap investments, large-cap equities. Your A is like your mid caps, and BBB is more like a small cap.

These ratings, for the bonds, are given by SEBI-registered external rating agencies, trying to quantify risk for an average individual. We rely on these rating agencies to understand how safe or risky the underlying bond is.

Kshitij Anand: How do you avoid the concentration risk, right? What should be the concentration or IVL portfolio allocation?

Saurav Ghosh: There's no guiding law around what kind of risk and opportunities that you are comfortable with. In my case, I feel that at any point in time my portfolio is earning 11%. So I think 10% exposure is good.

Let's say, for whatever reason, one of my investments goes bad, and I lose the entire capital, which does not ideally happen, but for argument's sake let’s assume it did. So if you have invested 10% in a particular bond, that's your concentration maximum. And the entire 10% then becomes zero. So in one year, instead of making 11%, you'll make 1%. Because, you know, that 10% is zero, the rest of the portfolio is still giving you 11%. So broadly, we'll make like close to zero to 1% in that year. The rest of the year, when nothing bad is happening or nothing goes bad, you're making your 11%.

Kshitij Anand: And lastly, you know, someone who is in the age bracket of let's say 30 to 35 years, what would you advise? What they should start

Saurav Ghosh: My advice would first be, you know, be open to all asset classes or investment options. What I've learned is there's no good or bad asset class. So it's not that equity is great, bonds are bad, or today there is crypto, and there will be many new asset classes as well. So treat every asset class with an open mind, understand the nature of the asset class, and then what role that asset class can play in your portfolio. Every asset class has a place in the portfolio. You should design a portfolio that is diversified so that it meets all your diverse needs.