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The Economic Times

What are the core and satellite strategy of building a portfolio?

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Core portfolio is geared to meet the long-term goals.
1. In this approach, investors differentiate between two segments in their portfolio, core and satellite.

2. Core portfolio provides stability and long term appreciation. The satellite portfolio offers an extra risk-adjusted return that pushes up overall returns.

3. Core portfolio is geared to meet the long-term goals. It forms about 60-70% of the portfolio. Index, diversified equity or large cap equity and short-term debt funds make up this portfolio.

4. The satellite portfolio forms a smaller part of the portfolio and is tactically managed to benefit from economic and market conditions. Long-term gilt funds, sector specific funds are some examples.

5. Transaction cost is low as core portfolio is not churned frequently and so is volatility of the overall portfolio. The liquidity needs can be met through the satellite portfolio.

(Content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)
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