Asset allocation is an investment portfolio technique that aims to balance risk by dividing assets among major categories such as cash, bonds, stocks, real estate, and others. Each asset class has different levels of return and risk, so each will behave differently over time. It is an investment strategy that aims to balance risk and reward by apportioning a portfolio’s assets according to an individual’s goals, risk tolerance, and investment horizon.
In mutual funds, asset allocation funds are basically mutual fund schemes that invest in a combination of equities and bonds. They offer investors an opportunity to diversify their investment portfolio by creating an exposure to stocks and bonds. Based on the investment objective of a mutual fund scheme, the assets are allocated by a fund manager who tracks the investments and makes changes in the asset allocation according to the scheme mandate.
The other benefit that asset allocation fund offers is that it helps to ride market volatility.Market volatility is a part and parcel of equity investing. However, the sharp correction followed by a sharp recovery seen in equities across global markets, over the past two months is unlike anything witnessed by the investors in the recent past. Investors with a long term investment objective and those who are investing through SIP however need not worry. By investing through SIP, an investor gets the opportunity to accumulate more units when markets are lower. In such situation, asset allocation discipline should be maintained at all time and do not let market volatility deter your investments.
Also, given the uncertainty regarding the spread of COVID-19 and its possible fallouts, volatility is expected to prevail in the near to medium term. In such situation asset allocation schemes is best poised to make the most of the opportunities available in equity and debt asset classes.
One such dynamically managed asset allocation fund is ICICI Prudential Asset Allocator Fund. Being a fund of fund, the scheme allocates predominantly between equity and debt mutual fund schemes based on in-house valuation model. The fund has been a consistent performer and has been received wide acceptance among the investors. This fund can be a worthy consideration for any investor looking to invest into asset allocation funds.
Akhil Mahajan, Independent Financial Advisor
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