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Why does Value Research Premium suggest equity funds even for income portfolios?

The idea is that the fixed-income portion generates steady growth, while the equity component boosts returns to keep pace with inflation, informs Ashutosh Gupta

Why does Value Research Premium suggest equity funds even for income portfolios?
- Ashok Mahadevan

Well, we believe that equity should be an important component of an income portfolio. That is because one would still need to keep up with inflation during long years of retirement.

Assume that a person has an entirely fixed-income-driven portfolio for his income needs, wherein he invests only in fixed deposits and derives a monthly income of about Rs 50,000 from such a portfolio. Now this Rs 50,000 income might be good enough for this person currently. But five years down the line, with inflation and a general rise in prices in the economy, that amount will not be good enough. He would need to increase that income. But a portfolio made up only of fixed-income investments would fail to keep pace with the rising prices. That is why it is essential to add a little bit of equity to that portfolio, to be able to provide enhanced returns over a period of time.

So the idea is to combine fixed-income investments and equity investments in a way that the fixed-income portion is able to generate steady growth, while the equity component boosts returns in a way that its volatility does not come in the way of regular income. That is the whole idea behind the way Value Research Premium suggests equity and debt allocation in an income portfolio.

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