Personal Finance in India — Statistical Arbitrage

Return vs Risk


Types of Risk

When investing, it’s important to take into account the following risks

  • Counter Party Risk: Is the entity or the person, you are dealing with reliable. Can they hold the end of their bargain? When you buy from a centralised exchange like NSE, you are offloading this risk to NSE. They take care of it.
  • Liquidity Risk: Not all assets are liquidated as soon as we need money. One of the prominent ones is real estate and shares in private companies. Since these are dark markets, there is no price discovery as well. One needs to do their own due diligence. It’s not easy to get out of such investments fast due to illiquid markets. Real estate, angel investments etc suffer from liquidity risk and make accurate price discovery difficult.
  • Concentration Risk: Having the majority of your savings/net worth in a single asset exposes you to concentration risk. As most of your portfolio’s outcome is tied down to what happens to that specific asset/asset class. This is only good when you are running your own business. But also, how massive growth in wealth happens for lots of people!
  • Inflation Risk: The primary intent behind investing is to preserve the capital’s purchasing. In growing economies, inflation is a constant threat and the investment vehicle chosen needs to beat inflation to retain its value. Bitcoin or cryptocurrency find a use case here. After a long time, I was finally convinced about its investment thesis when I could position bitcoin as a store of value against inflation risk in lieu of gold.
  • I would gold mutual funds (<10% of overall MFs) as a part of this portfolio. Any further allocation should be coming from the 10–20% risky bet.
  • In the long run, India’s index funds should do very well.
  • The whole idea is to take this random but high personal conviction but low market beta shots. Bets, where you strongly feel right but the general market sentiment is not so warm. If they work, they would single-handedly multiply the whole portfolio returns.
  • Should they not work, we still build a baseline portfolio returns through the safe part of the barbell.
  • I would put my own stock portfolio as a part of these 10–20 % risk bets.


Given the broader understanding of the equilibrium, return vs risk. These are some of the popular sources of content around personal finance

  • IndiaNivesh : A personal finance, has some interesting insights, thought to take everything with a pinch of salt as you should within the finance space.
  • IndiaInvestments: A popular finance subreddit for Indians. Has grown quite a lot and has plenty of interesting points on taking on personal finance dos and don’ts.
  • Let’s talk money: A personal finance in India 101 book recommended even on the subreddit. Anyone looking to start thinking of personal finance from scratch should give this a read.
  • Optimising MF Portfolio: This blog talks about different types of MFs to consider and how to split allocation between the same.



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