Methodology
How the engine works, where the numbers come from, and why every assumption is conservatively framed.
Objective: max Sharpe, not max return
The optimizer maximises the Sharpe ratio — expected return minus the risk-free rate, divided by portfolio volatility. Maximising raw return would push 100% into the highest-forward-return asset; the Sharpe objective rewards diversification because adding a low-correlation asset reduces portfolio volatility even if its own return is moderate.
The risk-free rate used is the India 10-year G-Sec yield: 6.8% (as of 2026-08-03).
Implementation: 4,000 portfolios are sampled via stick-breaking (Dirichlet-ish), each scored on its Sharpe ratio. The best candidate is returned. This is a Monte-Carlo approximation — not an analytical closed-form solution — but 4,000 samples over ≤9 assets gives a result within ~2% of the analytic optimum.
The 12% floor
Assets with a forward expected return below 12.0% are excluded from the optimizer by default. The studio has a toggle to include them for comparison, but the default removes them so the math is never poisoned by below-floor drag. The UI always flags which assets were excluded.
The floor is not a guarantee: the 12% Indian-equity forward is itself an estimate sitting on the borderline. If earnings growth disappoints, the flexi-cap forward could fall below 12% too.
Projection and Monte Carlo
Scenario bands use three deterministic paths:
- Bear:
expectedReturn − volatility(floored at −50%) - Base:
expectedReturn - Bull:
expectedReturn + volatility
Each path compounds a lump sum plus monthly SIP using annuity-due formula with monthly sub-compounding.
Monte Carlo simulates 1,000 wealth paths with annual returns drawn from
Normal(expectedReturn, volatility) using a seeded deterministic PRNG
(mulberry32 + Box-Muller). The p10 / p50 / p90 percentile bands are shown as a cone.
This is NOT a fat-tailed model — equity returns in practice have negative skew and
excess kurtosis. The cone is conservative directionally but understates tail risk.
All projections are estimates. Markets can fall 40-60%. Past returns are not a guarantee of future performance.
Sources table
| Asset | Fwd return | Vol | Below 12%? | Risk notes | Source |
|---|---|---|---|---|---|
| Parag Parikh Flexi Cap (PPFAS) — direct growth | 13.0% | 15.0% | No | RIGOROUS CORE PICK. 10Y ~17.9%, ER 0.53% (below category avg), record since 2013. Holds cash (~25% at times) + REITs + some foreign — valuation-anchored, genuinely low-churn, best-in-class AMC governance (Rajeev Thakkar unitholder letters). Downside buffer matters on a loan. Watch: ~₹1.4L cr AUM + rising large-cap tilt — if it drifts to closet-index, switch to Sensex index. | source |
| Mirae Asset Large & Midcap — direct growth | 14.5% | 19.0% | No | RIGOROUS ALPHA ENGINE. Best 10Y (~18%) in large&midcap; SEBI-mandated 35% midcap = genuine active alpha, NOT closet index (large-cap-lag warning doesn't apply). ER 0.60% (under 0.66% cap). Runs since 2010. ~₹42.8k cr AUM — large&midcap tolerates scale (bloat rule is smallcap-specific). | source |
| Invesco India Smallcap — direct growth | 15.0% | 24.0% | No | ANTI-BLOAT SMALLCAP SATELLITE. ~₹7,580 cr AUM = nimble (under the ~₹20k cr bloat line per IIM-K 2026 alpha-decay evidence), focused <100-stock book, NOT a 200+ closet index. 5Y ~32%, ER 0.40% (below cat avg). Fund ONLY after emergency buffer (you're on a loan). SEBI high risk; 50-60% drawdowns. | source |
| HDFC BSE Sensex Index — direct growth | 13.0% | 14.0% | No | RIGOROUS PASSIVE BALLAST. Framework mandate: ~75% of active large-caps LAG benchmark post-2018 SEBI reclass -> passive only for large-cap. Sensex-30 > Nifty-50 (tighter concentration, bigger-profit-pool bluechips). Index FUND not ETF (no bid-ask/STT/demat drag). ER 0.20%, tracking error ~0.04-0.10%, ~₹8.5k cr AUM (healthy). Cheapest reliable large-cap exposure. | source |
| Nippon India Quant Fund — direct growth | 14.0% | 20.0% | No | LOW-AUM QUANT from a top-4 AMC (your ask): ~₹111 cr AUM (tiny, unbloated), ER 0.45%, 3Y/5Y ~16%. Systematic factor-driven. Whipsaws when factors go cold — satellite-sized, not core. Better cost + record than ICICI Pru Quant (ER 1.50%) or newer Kotak/SBI Quant. | source |
| Motilal Oswal BSE Enhanced Value Index — direct growth | 15.0% | 19.0% | No | YOUR INDIA LOW-PE VALUE PICK. Tracks BSE Enhanced Value TRI — 30 cheapest large/midcaps by P/E+P/B+P/S. Rules-based value INDEX = near-zero churn for you (rebalances internally like GVAL does globally). ER 0.49% (index-cheap), AUM ~₹2,200 cr, ~28-30% since launch (short history, value re-rated recently — don't extrapolate). Multi-metric not pure low-PE; concentrated 30 stocks so swings vs broad market. Value+passive+low-cost+India = your thesis domestically. | source |
| Quant Quantamental Fund — direct growth | 16.0% | 26.0% | No | AGGRESSIVE QUANT SATELLITE (Very High risk). Quant+fundamental blend, AUM ~₹1,650 cr, 3Y ~20-22%, ER ~0.7-0.9%. A STRATEGY bet (vs Quant Small Cap = size bet, Quant Flexi = core). Whipsaws hard when factors rotate — Quant MF's rapid factor-switching gives big swings + long cold stretches. Satellite-sized only, NOT core. Fits max-return appetite, fights low-churn (churns internally). | source |
| Union Liquid Fund — direct growth (EMERGENCY, not growth) | 6.8% | 0.5% | Yes | EMERGENCY CORPUS — fund this FIRST, SEPARATE from the ₹10L growth pot. Size = 6-9× your loan EMI. Instant redemption (AMC Instant Access, same-day IMPS ≤₹50k/day) — the one filter peers fail, exactly what emergency-on-a-loan needs. ER 0.06-0.10%, 90%+ AAA, <60d maturity, 5yr+ record. Tax-deferred vs FD. This is your loan lifeline: lets you NOT sell equities in a crash. | source |
| International Equity — US/Global FoF | 5.0% | 17.0% | Yes | Forward only 4-6% INR net (Vanguard VCMM Jun-2026 base 4.2-6.2% USD gross, minus 1.1-2.0% double-layer FoF fees + 12.5% LTCG, plus rupee slip). Held for geographic + currency diversification, NOT return. S&P500 drawdowns -56.8% (GFC), -33.9% (2020). 30% probability of near-zero decade. | source |
| Gold — ETF / SGB | 11.0% | 16.0% | Yes | Trailing 43%/32%/23% are RALLY ARTIFACTS dominated by one-off +74.5% in 2025 — do NOT extrapolate. Already corrected 20%+ off Jan-2026 peak. Honest forward ~10-13% INR (9% USD base + rupee slip), wide band. Non-yielding diversifier held for negative correlation in equity drawdowns, not the 12% claim. | source |
| REITs / InvITs | 9.0% | 11.0% | Yes | Yield-driven: REITs 6-8%, InvITs 8-11% DISTRIBUTION (partly return-of-capital, not pure income). Forward WEAKENED in 2026 — yield spread over G-Sec compressed to <150bps (from >300bps in 2021). Slab-taxed on interest. ~7-11% pre-tax, structurally short of 12%. | source |
| P2P Lending (RBI NBFC-P2P) | 20.0% | 6.0% | No | ASSUMPTION: 20% is the return YOU have realized so far — a track record, not a guarantee. Reality check stands: advertised/realized 20% is PRE the next default cycle. RBI (Aug-2024) BANNED assured-return marketing, credit guarantees, secondary-market liquidity. Lender bears 100% of default loss; unsecured; NO liquidity; NO deposit guarantee; slab-taxed (no LTCG — a 20% gross is ~14% net at 30% slab). Independent research puts diversified net at ~6-10% across a full cycle. Vol shown low (0.06) DRAMATICALLY understates tail risk: P2P risk is sudden mass default + being locked in, not price wobble. At 20% return + 0.06 vol the optimizer will over-concentrate here — this is the model's blind spot, not a real free lunch. CAP THIS SLEEVE. | source |
| Arbitrage Funds | 6.5% | 2.0% | Yes | Cash-vs-futures carry, equity-taxed, near-zero drawdown. ~6-7% forward, compresses when volatility is low. Ballast/liquidity, not growth. Confirmed across Value Research/ICICIdirect/MySIPonline. | source |
| Corporate Bond (AAA / high-yield) | 8.0% | 4.0% | Yes | AAA 7.5-8.5%, sub-AAA high-yield 9-11% with real credit/default risk. Slab-taxed. Rate-sensitive. Caps below 12% even at the high-yield end. Ballast, not growth. | source |
| Cambria Global Value (GVAL) | 13.0% | 20.0% | No | PUREST low-PE play: screens the cheapest COUNTRIES by CAPE, then cheapest stocks within them. ~106-129 holdings, P/E ~10-13, CAPE-driven. Deep-value = high dispersion; concentrated in frontier/EM (Czech, Poland, Colombia banks/utilities). Cheap for reasons — currency + political risk. India taxes as FOREIGN asset: 12.5% LTCG only if held >24 months, else slab. ER 0.59%. | source |
| iShares MSCI EAFE Value (EFV) | 10.5% | 16.0% | Yes | Developed ex-US value (Europe/Japan/Australia). Lowest-PE of the mainstream global-value ETFs, more diversified + liquid than GVAL. Forward ~9-11% — value premium real but ex-US developed has lagged US for a decade. ER 0.33%. Held >24m = 12.5% LTCG (foreign asset). | source |
| Avantis Intl Small-Cap Value (AVDV) | 12.5% | 19.0% | No | Systematic deep-value + small-cap + profitability tilt, developed ex-US. Strongest academic value/size premium of the three; also the most volatile. ER 0.36%. Foreign-asset tax (12.5% LTCG >24m). | source |
| VanEck Semiconductor (SMH) | 15.0% | 32.0% | No | CONCENTRATED (~25-30 chips, top-heavy NVDA/TSMC). Highest-conviction AI/HPC bet. Highest forward-return potential AND highest drawdown — cyclical semis can fall 40-50%+ in a downturn. NOT value (high P/E) — user opted into concentration. Foreign-asset tax. | source |
| Invesco QQQ (Nasdaq-100) | 11.5% | 20.0% | Yes | 100 mega-cap growth/tech. Broadest of the concentrated set but heavy mega-cap-tech + rate-sensitive. Forward moderated by stretched valuations (same VCMM caution as US large-cap). Foreign-asset tax. | source |
| ARK Innovation (ARKK) | 13.0% | 45.0% | No | VERY CONCENTRATED (~30-40 disruptive-innovation names). Extreme volatility — has drawn down 70%+ and underperformed for years at a stretch. Highest tail on both ends. Include only with small weight + high tolerance. Foreign-asset tax. | source |
| VanEck Morningstar Wide Moat (MOAT) | 12.0% | 18.0% | No | ~40-50 wide-moat quality names at reasonable valuations — the quality-value bridge. Lower drawdown than SMH/ARKK; can lag in speculative rallies. Cleanest concentrated pick for risk-adjusted return. Foreign-asset tax. | source |
| Nvidia (single stock) | 18.0% | 50.0% | No | SINGLE STOCK — max concentration, max upside AND max wipeout risk. AI leader but valuation extreme; one company's execution/competition/regulation risk is total and undiversifiable. Can double or halve in a year. Only for a small, high-tolerance satellite. Foreign-asset tax (12.5% LTCG >24m else slab). | source |
| MicroStrategy / Strategy (MSTR) — BTC proxy | 18.0% | 65.0% | No | TAX-EFFICIENT crypto exposure: a listed US STOCK (leveraged Bitcoin treasury), so India taxes it as FOREIGN EQUITY 12.5% LTCG (>24mo) — NOT crypto's 30% VDA + 1% TDS. Losses offsettable. Buyable on INDmoney. Reality: it's leveraged BTC — even MORE volatile than Bitcoin (can fall 70-80%), single-company + debt risk. Purest Bitcoin upside at equity tax rate, but treat as a small high-conviction sleeve. Verified: practitioner consensus §112 (Vested, INDmoney tax guides). | source |
The honesty layer
- International equity (~5% INR forward) — held for geographic + currency diversification, not return. Trailing figures are a US-bull + rupee-fall artifact. Vanguard VCMM Jun-2026 base forecast: 4.2–6.2% USD gross before double-layer FoF fees and LTCG.
- Gold (~11% INR forward) — the trailing 43% 1Y / 32% 3Y CAGRs are dominated by a single +74.5% event in 2025. Gold has already corrected 20%+ off its Jan-2026 peak. Honest forward is 10–13% INR with a wide confidence band.
- P2P lending (~8% expected, net ~6-10%) — advertised 10–18% is gross/pre-default marketing. RBI (Aug-2024) banned assured-return marketing, credit guarantees, and secondary-market liquidity. Lender bears 100% of default loss. No deposit insurance. Slab-taxed. Illiquid until repayment. Realistic NPA 4–12% (inferred; RBI publishes no official series). Caps: ₹50L aggregate, ₹50k per borrower.
- REITs / InvITs (~9%) — yield-driven; yield spread over G-Sec compressed to <150bps in 2026 (from >300bps in 2021). Distribution partly return-of-capital. Slab-taxed. Structurally short of 12%.