Skip to main content

How to Decide your asset allocation with Mutual Funds?

Invest In Tax Saving Mutual Funds Online

Call 0 94 8300 8300 (India)

How to Decide your asset allocation ?

The funds that base their equity allocation on market valuation have given stable returns in the past. Pick these if you are a buy-and-forget investor.


Small investors are often victims of greed and fear. When markets are rising, greed makes the small investor increase his exposure to stocks. And when stocks crash to low levels, fear makes him redeem his investments.

But there are a few funds that avoid this risk by continuously changing the asset mix of their portfolios. Their allocation to equity is not based on the fund manager's outlook for the market, but on its valuations.

Our top pick is the Franklin Templeton Dynamic PE Ratio Fund, a fund of funds that divides its corpus between two schemes from the same fund house-the Franklin India Bluechip Equity Fund and Templeton India Income Fund. The allocation changes every month based on the PE of the market.

This auto rejigging has ensured stable 17.7% annualised returns for the fund since its launch in 2003. This is higher than the 14.7% returned by the Nifty but lower than the 19.8% delivered by the average diversified equity large-cap fund. It also pales before the 24.5% growth registered by the average large- and mid-cap diversified equity fund during the same period. However, the 'safety first' approach helped the fund contain losses when the market was unravelling in 2008. When the market peaked in January that year and the Nifty PE hit an all-time high multiple of 27.62, the FT Dynamic PE Ratio Fund had only 30% of its corpus in the Bluechip Equity, while 70% was safe in the Templeton India Income Fund.

Valuations decide the allocation


Small investors make the mistake of entering the market during bull runs and tend to compound the error by staying away from equity when the market turns bearish. This is where asset allocation funds take the right decisions on behalf of investors. When the market tanked and the Nifty PE hit a low multiple of 12-13 times in December 2008, the FT Dynamic PE Ratio Fund had 90% in equity. Currently, the Nifty PE is 18.5 times and the fund has 61% in stocks.

Just as the FT Dynamic PE Ratio Fund looks at the index PE, the ICICI Prudential Dynamic Plan considers the price to book value (PBV) ratio of the market while deciding its exposure to equity. When the Nifty PBV crosses 3.5, the fund reduces its equity exposure to the minimum 65% it is supposed to maintain. This astute allocation has enabled the fund deliver an eye-popping 26.8% annualised returns since its launch in October 2002. Now, when the Nifty is trading at a PBV of about 3.16, the fund has about 77% of its corpus invested in stocks. This is not a view on the market, but on the valuations.

The ICICI Prudential Equity Volatility Advantage Plan is a balanced fund that works on the same principle. Launched six years ago, it has consistently outperformed its category and even diversified equity funds. In the past one year, it has given 16.6% returns compared with 7-10% by various categories of diversified equity funds. This is not a flash in the pan. In the past five years, the fund has given 7.86% returns compared with 3-5% by the average diversified equity fund.

In the past 1-2 years, other fund houses have also launched funds that base their asset allocation on the market valuation. The big advantage for the investor is that he can rest easy in the knowledge that his fund will automatically book profits when prices shoot up.

Which is more flexible?

The FT Dynamic PE Ratio Fund is more flexible when it comes to asset allocation. It is a fund of funds and can technically reduce its allocation to stocks to zero. However, ICICI Prudential's Dynamic Plan and the Equity Volatility Advantage Plan need to have at least 65% in equity.


This feature ensures that the funds are eligible for tax exemption on long-term capital gains. On the other hand, there is no exemption available to investors in the FT Dynamic PE Ratio Fund because it is a fund of funds. Short-term gains are added to your income and long-term gains are taxed at a lower rate of 10% (or 20% after indexation). Do remember, however, that there is no tax implication for the investor when the fund shifts from stocks to debt and back in a volatile market.

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 in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.

Invest Tax Saving Mutual Funds Online

Tax Saving Mutual Funds Online

These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)

Download Tax Saving Mutual Fund Application Forms from all AMCs

Download Tax Saving Mutual Fund Applications

These Application Forms can be used for buying regular mutual funds also

Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )

  1. ICICI Prudential Tax PlanInvest Online
  2. HDFC TaxSaverInvest Online
  3. DSP BlackRock Tax Saver FundInvest Online
  4. Reliance Tax Saver (ELSS) FundInvest Online
  5. Birla Sun Life Tax Relief '96 Invest Online
  6. IDFC Tax Advantage (ELSS) FundInvest Online
  7. SBI Magnum Tax Gain Scheme 1993Invest Online
  8. Sundaram Tax SaverInvest Online
  9. Edelweiss ELSS Invest Online

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

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 MutualFundsInvest 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

Mutual Fund Review: Taurus Tax Shield

    Taurus Tax Shield has seen a turnaround in performance since 2007, but still remains a volatile offering… The fund has seen a turnaround in its performance since 2007 and has delivered impressively during market rallies since then. The portfolio is also more diversified. It contained its downfall to an average level in 2008 but is still one of the most volatile offerings in this category. Bold investors can look at this fund.   Strategy The fund manager invests across the market capitalisation and sectors. The selection of stocks is made on the basis of long-term business prospects and value creation. Fund Insight Launched in March 1996, the fund was a laggard with just two annual outperformances. Concentrated stock bets and high exposure to mid and small caps led to it being hit harder during market downturns. The number of stocks in the portfolio never exceeded 20 and it was not rare to see the top 5 holdings account for around 60 per cent of the portfolio. After b...
Read more

AXIS Long Term Equity Fund - The Best Tax Saver Fund for 2016

  AXIS Long Term Equity Fund - Invest Online   History:   The open ended mutual fund was launched on December 21 in the year 2009. It is benchmarked against BSE 200 and managed by the fund manager JINESH GOPANI. Initially the scheme was called as Axis tax saver fund but later it was renamed as Axis long term equity fund with effect from September 2, 2011. Nature of investment: As far as asset allocation is concerned, 97.52% of the stocks are equity and 0.02% is debt based. The primary focus of the fund is to invest in diversified equity stocks that have higher growth potential. Total asset size of the fund is in the tune of 4,996 CRORE as of June 30, 2015. Performance: The performance of the fund for one year, 3 years and 5 years are 23.6%, 29.9% and 19.1 respectively which are far greater than 6.4%, 14% and 5.6% benchmark figures. It has also preformed fairly well against SBI magnum Tax Gain (G) and HDFC tax saver (G). The growth comparison is enumerated below;                        ...
Read more

Health insurance guide - Part I

Insurance, by definition, is morbid. What if I die suddenly? What if my home caught fire? What if I had to undergo expensive medical treatment? What if something that I thought happened only to others befell me? Insurers, who work with large samples, calculate the probability of such an event and, hence, the possibility of them having to pay out a sum of money to mitigate, to the extent possible, the effects of that disaster. However, the possibility of you undergoing some kind of expensive medical treatment during your lifetime is far more likely than you dying suddenly or your house burning down. Given that costs at private healthcare facilities, where you are most likely to land up, is high, and, doubling every four years 10 months or so, the rest of your money life could easily go out of whack if you had to incur such expenses. Just 12 per cent of India's population is covered with some sort of health insurance. Pared to the bone, for a comparatively small price, health insu...
Read more

IDFC Classic Equity Fund

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India)   IDFC Classic Equity Fund IDFC Classic Equity is a large-cap equity fund which currently has assets under management worth Rs. 158.52 crore. It was launched in August 2005. The fund is benchmarked against the BSE-200 Index. Performance YTD 1-Year 3-Year 5-Year Since Inception IDFC Classic Equity 0.93 26.61 6.30 1.01 11.65 BSE 200 1.52 17.31 6.00 1.99 12.98 All figures in % as on January 31, 2013; Returns above one-year in CAGR terms ...
Read more

10 year NSC launched, all set to give 8.7 per cent

Invest in Mutual Funds Online Download Mutual Fund Application Forms THE government introduced a 10-year National Savings Certificate ( NSC ), which will earn an interest rate of 8.7 per cent per annum. The notification for the launch of the new savings instrument, 10-year National Savings Certificate (IX-Issue), 2011, has been issued, an official statement said. The scheme will come into effect from December 1, it added. Investments in NSC will earn interest at the rate of 8.7 per cent compounded semi-annually, it said, adding that on an investment of Rs 100, the depositor will get Rs 234.35 on maturity of the NSC. There is no upper limit for investment in the certificate, it added. The new scheme will give better returns along with tax benefit to savers. At present, the maturity period of NSC is six years and it qualifies for tax relief for investment up to Rs 1,00,000 under Section 80C. The decision to raise the maturity period of NSC has been taken on the b...
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