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

Tata Mutual Fund

Being a part of the Tata group, the fund has the backing of a very trusted brand name with strong retail connect. While the current CEO has done an excellent job in leveraging the Tata brand name to AMC's advantage, it is ironic that this was just not capitalised on at the start. Incorporated in 1995, Tata Mutual Fund remained an 'also-ran' fund house for around eight years. Till March 2003, it had a little over Rs 1,000 crore in assets and 19 AMCs were ahead of it. But soon after that the equation changed. It was the fastest growing fund house in 2004 and 2005. During these two years, it aggressively launched six equity funds, two debt funds and one MIP. The fund house as of now stands at No. 8 in terms of asset size. This fund house has a lot to offer by way of choice. And, it also has a number of well performing schemes. Tata Pure Equity, Tata Equity PE and Tata Infrastructure are all good funds. It also has quite a few good debt funds. The funds of Tata AMC are known to...
Read more

UTI Mutual Fund

Even though only a few of UTI’s funds are great performers, this public sector fund house has many advantages that its rivals do not. It has a huge base of retail equity investors and a vast distribution network. As a business, it looks stronger than ever, especially in the aftermath of credit crunch. UTI is, by a large margin, the most profitable fund company in the country. This is not surprising, since managing equity funds is more profitable than debt. Its conservative approach and stable parentage is likely to make it look more attractive to investors in times to come. UTI’s big problem is the dragging performance that many of its equity funds suffer from. In recent times, the management has made a concerted effort to improve performance. However, these moves have coincided with a disastrous phase in the stock markets and that has made it impossible to judge whether the overhaul will eventually be a success. UTI’s top performers are a few index funds, some hybrid funds and its inf...
Read more

Salary planning Article

1. The salary (basic + DA) should be low. The rest should come by way of such allowances on which the employer pays FBT and you don't pay any tax thereon. 2. Interest paid on housing loan is deductible u/s 24 up to Rs 1.5 lakh (Rs 150,000) on self-occupied property and without any limit on a commercial or rented house. 3. The repayment of housing loan from specified sources is also deductible irrespective of whether the house is self-occupied or given on rent within the overall ceiling of Rs 1 lakh of Sec. 80C. 4. Where the accommodation provided to the employee is taken on lease by the employer, the perk value is the actual amount of lease rental or 20 per cent of the salary, whichever is lower. Understandably, if the house belongs to a family member who is at a low or nil tax zone the family benefits. Yes, the maximum benefit accrues when the rent is over 20 per cent of the salary. 5. A chauffeur driven motor car provided by the employer has no perk value. True, the company would...
Read more

8 Investing Strategy

The stock market ‘meltdown’ witnessed since the start of 2005 (notwithstanding the recent marginal recovery) has once again brought to the forefront an inherent weakness existent in our markets. This is the fact that FIIs, indisputably and almost entirely, dominate the Indian stock market sentiments and consequently the market movements. In this article, we make an attempt to list down a few points that would aid an investor in mitigating the risks and curtailing the losses during times of volatility as large investors (read FIIs) enter and exit stocks. Read on Manage greed/fear: This is an important point, which every investor must keep in mind owing to its great influencing ability in equity investment decisions. This point simply means that in a bull run - control the greed factor, which could entice you, the investor, to compromise with your investment principles. By this we mean that while an investor could get lured into investing in penny and small-cap stocks owing to their eye-...
Read more

Debt Funds - Check The Expiry Date

This time we give you an insight into something that most debt fund investors would be unaware of, the Average Portfolio Maturity. As we all know, debt funds invest in bonds and securities. These instruments mature over a certain period of time, which is called maturity. The maturity is the length of time till the principal amount is returned to the security-holder or bond-holder. A debt fund invests in a number of such instruments and each of these instruments would be having different maturity times. Hence, the fund calculates a weighted average maturity, which would give a fair idea of the fund's maturity period. For example, if a fund owns three bonds of 2-year (Rs 30,000), 3-year (Rs 10,000) and 5-year (Rs 20,000) maturities, its weighted average maturity would be 3.17 years. What is the big deal about average maturity then, you may ask. Well, knowing a fund's average maturity is important because it tells you how sensitive a fund is to the change in interest rates. It is ...
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