Invitation for Asset Allocation

Posted On Wednesday, Apr 16, 2014

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This week, starting April 16th 2014 a much awaited cricket series will take the nation by storm, keeping us hooked to the television for most of our free time.

Believe it or not there is a much stronger connects between cricket and investments than what one might believe!

Just like the teams in this series are formed by picking the best cricketers from around the world, and together they exhibit the best of what each one has to offer. While some might be excellent bowlers; others might be top-notch batsmen or fielders. It is this combination that helps the team to win. Sometimes it is the bowlers that will perform or sometimes the batsmen, ideally both need to perform well to win.

This is so much similar to your investment portfolio which is nothing but a combination of different asset classes that help you achieve or reach your financial goal in the long run.

The key to long term wealth creation is having the right asset allocation strategy as different asset classes can perform differently under similar market conditions. For eg. When equities do not perform well, bonds or gold may perform better. Bringing us back to the cricket example when sometimes even though the batsmen have not been able to perform, the bowlers might take quick wickets and helps win the match. Therefore, diversifying your investments among various asset classes helps you to minimize losses and move toward your ultimate financial goals.

Many of you might wonder: where to invest and how to design a right asset allocation strategy?

Investing in Mutual funds can be one of the options where you can park your hard earned money and take a big stride forward towards planning for your future financial liabilities. Regulated by the Securities and Exchange Board of India (SEBI), a mutual fund is a professionally managed pool of money from many investors. This money is invested in stocks, bonds, money market instruments and other securities in accordance with objectives as disclosed in offer document of a Mutual Fund Scheme by investment experts also called fund managers.

Asset allocation in mutual funds depends on the below mentioned factors:


Age Bracket

What age you belong in, determines what your plans should really look like. Young people, who have a constant income of money, generally always, afford to invest more in equity funds, because given the fact that they have a constant inflow of money, they could afford to take risk and aim to generate higher returns. After all, it is when you are young that you make mistakes and progress and learn from both. At the same time, if you are retired or close to retirement, you might choose debt funds, as they are less risky and aim to give moderate returns.

The old thumb rule of subtracting your age from 100 works fine in most cases. According to it, if you are 25 years of age then you’d ideally have 75% of investments in equities and the rest in debt. Investment experts recommend gold too, but not more than about 10% of your investments. You can try the asset allocation calculator on our website.


Risk Appetite

It basically pertains to an individual’s financial ability and willingness to risk the investment amount. If you have a higher risk appetite then you may go for equity funds, similarly if your risk appetite is low debt funds may serve your purpose.


Time Horizon

Time horizon refers to the duration for which the person desires to invest the money in any particular field. Every person has a specific financial goal in mind and time horizon plays a significant role in helping the person achieve that financial goal. Therefore the asset allocation of a 25 year old planning for retirement and a 40 year old planning for retirement will be quite different, even though their end goal is the same.

The above mentioned things are those that you should keep in mind, while you are planning on asset allocation. Make sure you place yourself in the shoes of the wealthy team owners (wouldn’t that be fun?!) of this cricket series and choose your players prudently, who will help you win the match of your financial goal. You can also consult a financial advisor before selecting any tool for investments.



Disclaimer, Statutory Details & Risk Factors:
The views expressed here in this article are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of this article should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments. Please visit – www.quantumamc.com/disclaimer to read scheme specific risk factors.

Above article is authored by Quantum.

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