Skip to main content

Asset allocation - Basics

Invest Mutual Funds Online

Call 0 94 8300 8300 (India) 

You need to ensure your asset allocation ratio is always in line with your risk appetite. This is even more so when the markets are volatile. A sharp market movement can change the values of specific asset classes in a portfolio.


   As an investor, have you ever stuck to one product for your portfolio? Chances are no. You would have shifted from one investment option to another depending on the preference of your peer group. It could well have been debt in the 90s, equity in mid-2000, and gold in the last couple of years.


   Has the strategy been very effective? Yes and no could be the answer. It would have proved very effective if the timing was perfect and you would have got it all wrong if you had chased an investment product at the wrong time or at its peak. Adopting the second strategy is a lot easier than the first one. So, in effect, timing the market for any product is a challenging task. The best way to make use of different products is by following the asset allocation pattern.


   If the decision to allocate money across different products is a tough challenge, managing and maintaining it is even tougher a challenge. Due to variance in performances of different products, maintaining the percentage of allocation is even tougher. Hence, the asset allocation strategy requires greater discipline, better time management with respect to fund needs and long-term planning. While many know this, the challenge has been more with respect to implementation. Here are some tips to help you maintain asset allocation according to your needs:

Plan needs    

Plan your financial needs according to the short, medium and long terms. The classification will make the choice of product a lot easier. For instance, short-term needs can do away with products like property or equity, and focus on a narrow range of options.


   On the other hand, for long-term needs you need not worry about fluctuations in the performances of products in the short term.

Sustained monitoring    

Any wealth creation requires continuous focus and regular review. This could be in the form of sustained contribution at regular intervals or enhancing the contributions to the investment process. For instance, no investor can invest a sum of Rs 5 lakhs at one go for his long-term needs for the next 20-25 years in the current scenario. A 25-year-old professional may hate the prospect of investing on a monthly or annual basis for his retirement though he has the alternate option of investing Rs 20-25 lakhs at one go. At the age of 25, not many (you could even say nobody) will have access to such funds and hence, accumulation is the only option.


   It is in this context, that a regular review is a necessity, not because of the long-term nature of the investment process but also due to the change in investment capabilities of an investor. In 1995, there would have been only a handful of investors who had the ability to invest Rs 1 lakh on a monthly basis. Today, many middle income families have been managing to do that without a fret. Hence, it is important to scale up the investment amount at regular intervals to counter the inflation rate and take care of the long-term needs in life. The change is not restricted to the supply side (investment capabilities) as even the demand (fund needs) undergoes change at a rapid pace.

New options    

While asset allocation is a necessity, the basket of products needs to be reviewed, and additions and deletions may become a necessity at regular intervals. Since every decade has witnessed the emergence of new options, commitment to a single product over a very long period of time may not be feasible. Instead, move your money across products based on their risk profile.

Happy Investing!!

We can help. Call 0 94 8300 8300 (India)

Leave your comment with mail ID and we will answer them

OR

You can write back to us at PrajnaCapital [at] Gmail [dot] Com

 

---------------------------------------------

Invest Mutual Funds Online

Transact Mutual Fund Online

Download Mutual Fund Application Forms from all AMCs

Download Mutual Fund Application Forms

Best Performing Mutual Funds

    1. Largecap Funds Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Birla Sun Life Front Line Equity Fund
    2. Large and Midcap Funds Invest Online

      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
    1. Mid and SmallCap Funds Invest Online

      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
    1. Small and MicroCap Funds Invest Online

      1. DSP BlackRock MicroCap Fund
    1. Sector Funds Invest Online

      1. Reliance Banking Fund
      2. Reliance Banking Fund
    1. Tax Saver Mutual  Funds  Invest Online
      1. ICICI Prudential Tax Plan
      2. HDFC Taxsaver
      3. DSP BlackRock Tax Saver Fund
      4. Reliance Tax Saver (ELSS) Fund
    2. Gold Mutual Funds Invest Online

      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund

 

 

Popular posts from this blog

All about "Derivatives"

What are derivatives? Derivatives are financial instruments, which as the name suggests, derive their value from another asset — called the underlying. What are the typical underlying assets? Any asset, whose price is dynamic, probably has a derivative contract today. The most popular ones being stocks, indices, precious metals, commodities, agro products, currencies, etc. Why were they invented? In an increasingly dynamic world, prices of virtually all assets keep changing, thereby exposing participants to price risks. Hence, derivatives were invented to negate these price fluctuations. For example, a wheat farmer expects to sell his crop at the current price of Rs 10/kg and make profits of Rs 2/kg. But, by the time his crop is ready, the price of wheat may have gone down to Rs 5/kg, making him sell his crop at a loss of Rs 3/kg. In order to avoid this, he may enter into a forward contract, agreeing to sell wheat at Rs 10/ kg, right at the outset. So, even if the price of wheat falls ...
Read more

Mutual Fund Review: SBI Bluechip Fund

Given SBI Bluechip Fund's past performance and shrinking asset base, the fund has neither been able to hold back its investors nor enthuse new ones   LAUNCHED at the peak of the bull-run in January 2006, SBI Bluechip was able to attract many investors given the fact that it hails from the well-known fund house. However, the fund so far has not been able to live up to the expectation of investors. This was quite evident by its shrinking asset under management. The scheme is today left with only a third of its original asset size of Rs 3,000 crore. PERFORMANCE: The fund has plunged in ET Quarterly MF rating as well. From its earlier spot in the silver category in June 2009 quarter, the fund now stands in the last cadre, Lead.    Benchmarked to the BSE 100, the fund has outperformed neither the benchmark nor the major market indices including the Sensex and the Nifty. In its first year, the fund posted 17% return, which appears meager when compared with the 40% gain in the BSE 1...
Read more

Zero Coupon Bonds or discount bond or deep discount bond

A ZERO-COUPON bond (also called a discount bond or deep discount bond ) is a bond bought at a price lower than its face value with the face value repaid at the time of maturity.   There is no coupon or interim payments, hence the term zero-coupon bond. Investors earn return from the compounded interest all paid at maturity plus the difference between the discounted price of the bond and its par (or redemption) value. In contrast, an investor who has a regular bond receives income from coupon payments, which are usually made semi-annually. The investor also receives the principal or face value of the investment when the bond matures. Zero-coupon bonds may be long or short-term investments.   Long term zero coupon maturity dates typically start at 10 years. The bonds can be held until maturity or sold on secondary bond markets.
Read more

Principal Emerging Bluechip

In its near ten year history, this fund has managed to consistently beat its benchmark by huge margins The primary aim of Principal Emerging Bluechip fund is to achieve long term capital appreciation by investing in equity and related instruments of mid and small-cap companies. In its near ten year history, this fund has managed to consistently beat its benchmark by huge margins. This fund defined the mid-cap universe as stocks with the market capitalisation that falls within the range of the Nifty Midcap Index. But, it can pick stocks from outside this index and also into IPOs where the market capitalisation falls into this range. Principal Emerging Bluechip fund's portfolio is well diversified in up to 70 stocks, which has aided in its performance over different market cycles. On analysing its portfolio, the investments are in quality companies that meet its investment criteria with a growth-style approach. Not a very big-sized fund, it has all the necessary traits to invest with...
Read more

Mutual Fund MIPs can give better returns than Post Office MIS

Post Office MIS vs  Mutual Fund MIPs   Post office Monthly Income Scheme has for long been a favourite with investors who want regular monthly income from their investments. They offer risk free 8.5% returns and are especially preferred by conservative investors, like retirees who need regular monthly income from their investments. However, top performing mutual fund monthly income plans (MIPs) have beaten Post Office Monthly Income Scheme (MIS), in terms of annualized returns over the last 5 years, by investing a small part of the corpus in equities which can give higher returns than fixed income investments. The value proposition of the mutual fund aggressive MIPs is that, the interest from debt investment is supplemented by an additional boost to equity returns. Please see the chart below for five year annualized returns from Post office MIS and top performing mutual fund MIPs, monthly d...
Read more
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now