The suggestions given by our algorithm are initially time based. Investors investing for a shorter period
of time (i.e. less than two years) are given more exposure to Debt Funds as over the short term, returns
from Equity Funds are volatile. Those investors looking at a medium term horizon (i.e. between two to
five years) are given moderate exposure to Equity, but the portfolio is still slightly biased towards Debt
Funds as the returns of these over the given time frame are more predictable and stable. For the long
term (i.e. greater than five years) equity funds vastly outperform debt funds and thus the algorithm
suggests mainly equity funds for such portfolios.
Once the initial allocation is done between equity and debt, the algorithm then further differentiates
the portfolios by giving specific types of mutual funds that should be present in each portfolio as per the
risk score obtained from the questionnaire. Now that we have the exact asset allocation for each
portfolio, we can then move on to selecting the individual funds.
To do this, our algorithm uses Modern Portfolio Theory, a theory proposed by Harry Markowitz, a Nobel
Prize winning economist. Using MPT, our algorithm finds such a combination of funds, within the given
asset allocation that provides you with the maximum returns for the risk that you are comfortable with.
The funds we select are chosen on the basis of the past 3Y and 5Y returns, and only the best performing
funds are selected to be a part of your portfolio.