How The Five-Finger Framework Helps Investors Balance Risk And Returns

Last Updated:March 16, 2026, 15:52 IST

An effective diversification plan that allocates your equity investment portfolio in different segments for maximum benefits and risk management.

As market leadership keeps fluctuating due to a variety of reasons beyond their control, equity investors recognise the need to diversify their portfolio. Spreading your investment into different market segments is considered one of the most effective ways to raise the long-term gains without pushing the risk quotient.

This style of investment has given birth to an interesting strategy called the ‘five-finger framework’, where an investor divides an equity portfolio equally across five distinct options. Since the equity market is never linear and different segments fetch different set of investment benefits at different times, diversifying one’s portfolio helps realise the maximum value of each segment over an investment tenure.

Five-Finger Framework

Experienced investors would be aware of how value stocks tend to perform well when the market is in recovery mode but growth stocks come to fetch more benefits during cycles when innovation is on the rise. Small and mid-cap stocks fetch maximum profits during the bull period but fall during corrections. Diversification allows you to realise the maximum potential of these cycles with your equity investments, while saving you from the risk of relying entirely on one segment.

The five-finger framework is a FundsIndia brainchild, which further simplifies the diversification model for investors. It identifies each segment of the portfolio and investment style as one finger of a collective hand of investment.

“We are not very big on recommending thematic or you know sectoral funds and that comes from a philosophy we drive. For us, we fundamentally believe that there are 4-5 different type of investing styles that fund managers have," said Akshay Sapru, group CEO, FundsIndia, to Money Control.

“We have a five-finger strategy, which is a sort of proprietary strategy, in which we believe that mutual fund assets should be allocated across these 5 styles because each of these 5 styles works well in a certain kind of market and they have their cyclicality in terms of when they deliver returns."

To Allocate Equally Where?

The five-finger diversification plan, or strategic allocation of equity funds in different segments, works based on the weighted average. According to Sapru, FundsIndia suggests a short list of funds in each of these segments or investment brackets. Basing the analysis on historic traits of these over 5-7 years rolling return periods, FundsIndia discovered that an investor will more often than not end up beating the benchmark by at least 200-300 basis points as a weighted average.

The five segments are Quality funds, Value funds, Growth at a reasonable price (GARP), Mid- and small-cap funds and Global funds. In a diversified portfolio based on FundsIndia’s five-finger investment framework, each of these segments will get a 20 per cent allocation. These will be best served by UTI Flexi Cap Fund (quality), ICICI Prudential Value Fund (value), Parag Parikh Flexi Cap Fund (GARP), DSP Midcap Fund (mid or small-cap), and a preferred US equity fund for global funds exposure.

According to a strategy factsheet of FundsIndia, the five-finger framework has produced annual returns worth 17.4 per cent over 10 years. 2.1 per cent higher than the outcomes from the Nifty 500 TRI while managing the risks associated with market volatility.

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