Asset Allocation: Smart Way to Balance Financial Risk

Bangalore: Investment experts ask investors to always follow a proper asset allocation plan and rebalance it at regular intervals to create wealth in long term, reports Economic Times. Asset allocation is a systematic investment strategy, which mainly aims to balance risk and appoints a portfolio’s assets according to an individual’s goals, risk tolerance and investment horizon.

Financial planning exercise and asset allocation are completely different from each other but investors or financial professionals should use asset investment as a key tool, though there is no hard and fast formula that can find the perfect allocation for every individual. So, many investors find it difficult to do allocation as well as rebalancing on their own. Hiring a professional for this job also is not possible for various reasons, like - high fees, lack of access and a small sized portfolio.

“Multi manager asset allocation fund helps investors to invest in the best of the mutual fund schemes investing in various assets as per a pre-determined asset allocation. It also helps to track, continue with good investments and weed out underperformers,” says Navin Suri, MD and CEO of ING Investment Management India, as quoted by ET.

There are three main asset classes – Equities, Fixed Income and Case and Equivalents. All these have different levels of risk and return, so each will behave differently over time. Asset allocation mutual fund provides investors with a portfolio of a fixed or variable mix of these three main asset classes in a variety of securities.  

Asset allocation mutual fund is also known as life-cycle or target-date. In other words, your selection of individual securities is secondary to the way you allocate your investment as this investment in various bonds and stocks will be the principle determinants of your yielding.