INVESTMENT PLANNING

What is Asset Allocation ?

Asset Allocation

Whenever it comes to making all sorts of investments, asset allocation always plays a key role. The allocation of assets helps in the creation of wealth for a long run. Assets comprise of equities or shares and various debt instruments such as bonds, debentures, government securities, commodities, real estate and various other financial machineries. However, in terms of making any sort of financial investments, equities and debt have a key role to play to accelerate the allocation of assets.

Asset allocation is considered to be the sync in between the ration of investment of funds made in debt and equities. This particular ratio depends upon the risk appetite of the investor along with various other elements such as the financial goal to be achieved, duration of investment and many others. Equities always tend to offer a higher value of return, however the only drawback here being a greater risk in terms of investment, also no guarantee in terms of appreciation or return remains yet another hurdle in making such investment. Return on the equities is totally dependent upon the performance of the stock markets whereas the debt instruments tend to offer steady returns as return here is guaranteed in the pattern of fixed interest.

In the financial business, return on the debt instrument is not really affected by the performance of the stock markets. Most of the times, it depends upon the performance of the company that has issued the debt instrument. They should not make any kind of default in terms of payment of the committed interest. The return, both in terms of debt and equity is totally dependent upon the performance of the company throughout a financial year. Thus, mutual funds always make investment in equities and debt of the companies which are more reputed in the markets than the companies which are not.

Mutual funds have floated various kinds of funds considering the increasing requirement of the investors. Following are known to be the popular schemes:

SCHEMES RATIO OF INVESTMENT IN EQUITY:DEBT RISK
EQUITY MUTUAL FUND 80:20 HIGH
DEBT MUTUAL FUND 100% IN DEBT LOW
HYBRID MUTUAL FUND 50:50 MODERATE
EQUITY LINKED SAVINGS SCHEME(ELSS) 100 IN EQUITIES HIGH

 

Most of the mutual funds schemes available in the markets are open ended in nature. This means that a person can invest in the funds of his preference at any time at the present Net Asset Value of any particular scheme.

Alongside, mutual funds are also believed to be floating some other close ended schemes having mid-to-long term period which are further expected of generating a better return. Some of these famous schemes are listed as under:

  1. Infrastructure Fund
  2. Children Education Fund
  3. Pharma Fund
  4. Capital Protection Fund
  5. Energy Fund

In all these above listed funds, the allocation of assets is always varied in terms of debts and equity.

Professional handling of asset allocation:

The main task of asset allocation in mutual funds is controlled by the experts. Mutual funds embrace a committed research and analysis wing which constantly reviews and analyze the performance of the companies under which they have made an investment. Each of these schemes is managed by a professional fund manager who is held responsible for the performance of such scheme. All these fund managers are qualified professionally along with having a wide experience in the field of stock market operations.

Personal review of asset allocation:

Mutual funds also permit the investors to personally scrutinize the performance of the schemes and permit the investors to rejig the allocation of the assets. All the mutual funds have online facilities as well as the investors are always given a chance to change over to various other available schemes by the way of submitting online requires without personally approaching the mutual funds.

Helps in tax planning:

Any investor can minimize his liability of tax by the way of rejigging the investment ration. Both the debt and equity funds provide long term capital gains (LTCG) benefits. In context of debt fund, indexation benefit is available, whereas in terms of equity fund, LTCG is nil up to a total of Rs.1 lakh and taxed at 10 percent above Rs.1 lakh respectively.

Conclusion:

Asset allocation is considered to be a dynamic process and the same plays a very important role in terms of investment. A wise allocation of assets aids in the creation of wealth for a long run

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Chalo Niveshak

We are financial Advisor based at Ahmedabad. having a vaste experience of more than 10 years in financial sector. More than 500 families are happily enjoying services provided by us in their financial planning journey. We are also associated with more than 10000 financial advisors accross India and discussing about various needs and problems of investors. so we know how to deal with various objectives of various goals of our investors better than others.

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