Strategies for Alpha creation

Generating returns over and above the benchmark i.e. generating “alpha” is primary motive of almost all the investors. Sometimes simple strategies lead us to wonderful results. But key part is to execute these strategies without fail.

Here we will discuss some common strategies which can help you beat benchmark (Nifty 50).

  1. Market timing
  2. Active Fund Management 
  3. Passive Re-balancing – Asset Allocation discipline


Market timing simply means identifying market cycles and investing in times when market are rising and stay away from equities when markets are falling. This is not at all easy and one needs to have lot of understanding of multiple components and first-hand experience at-least 2-3 cycles. Flip side of this is going wrong on market call can significantly erode your wealth.

Active Fund Management

This strategy can yield you alpha in a fairy consistent and dependable manner but you need to bet on right horse (Choosing the right Fund & intern the Fund manager). Again, there can be periods (like CY 2018) where markets can be extremely narrow (only selected few stocks gaining whereas rest of the market struggling). To understand these intricacies of the markets and chose right funds you need able, attentive and active Financial Advisors.

Asset Allocation discipline

“Don’t put all your egg in one basket” is what it at the core of this strategy. Proper asset allocation and periodic re-balancing can help you generate alpha over long period of time in a consistent and dependable manner. To give an example, Nifty 50 index has delivered 11.41% CAGR return over 23-year period. If you had invested 80% of your assets in Nifty 50 and 20% of assets in an income fund (Debt mutual fund) and had done re-balancing every year your return would have been ~ 12% surprisingly more than Nifty 50 returns. This happens because when equities fall debt component help protect downside and hence saves capital erosion.

But again, to reduce equity exposure when equities are giving handsome returns and on a similar note reducing debt when equities are looking lackluster can be a tough mental challenge. In the game of investing often greed and fear take out rational thinking. A Financial Advisor who have seen cycles, understands how to select funds and disciplined enough to help you stick with your asset allocation will help you generate “Alpha” over Medium to long term horizon.