Different Types Of Mutual Funds In India

 

As a first time investor, it can be a daunting task to select the right type of mutual fund to invest in. The first step to accomplishing this is to have an investment objective. That in itself is a dilemma as you will now be thinking about how you should determine an investment objective when investing in mutual funds.
An investment objective can be simply defined as what you expect to achieve from a mutual fund investment in terms of growth and dividends. This objective is based on parameters like the investment term and your risk taking appetite.

Mutual Fund related terms that you should know

Assets: These are the market instruments like stocks, bonds etc. that a mutual fund invests in.
Asset Management Company: This is a company that comprises of a fund manager and financial experts who manage the assets of the mutual fund that you have invested in.
Corpus: The combined total investment of all the investors in a mutual fund.
Exit Load: The cost that you need to pay to withdraw your invested capital from a mutual fund.
Investment Portfolio: This portfolio is the collection of the assets in which an AMC invests. The asset allocation is based on the mutual fund’s investment objective.
NAV: Net Asset Value is the price at which investors can buy or sell their units and is measured by this simple formula –

Net Asset Value =                Market value of assets–Liabilities
                                       Total number of asset units in the mutual fund on a given day

Here, the market value of assets (or securities like shares,bonds etc.) is the value that your securities in a mutual fund hold on a given day while the liabilities refer to the charges that the Company takes for managing mutual funds.

Types of Mutual Funds

While the wide array of options in mutual funds make for a selection headache, it is also beneficial as it makes it easier for you to find a mutual fund that is in line with your investment objective.
Let’s have a look at the types of mutual funds you can invest in: –

Equity Funds

Equity funds comprise of the largest part of the financial market investment. These funds invest primarily in stocks and have a high risk-return ratio. This ratio implies that shares with higher risk are capable of fetching higher returns.
The stock investment can be in small, mid or large cap companies which can be focused on an individual sector or diversified among different sectors. If you have a high risk-taking appetite and a long-term outlook, investment in equity mutual funds can be very rewarding as the long term capital gains from them are exempted from tax.

Debt/Income Funds

Debt funds invest primarily in corporate or government bonds and securities. Well suited for a less risk taking investor, debt funds are a good option to generate a fixed income as well as fixed returns. The ability of your asset portfolio to counter any unforeseen risk plays an important role. Investment in these funds can be made from a short-term as well as a long term objective. A welcome characteristic of debt funds is that you can avail indexation benefits on long-term investments to save on tax.
Indexation benefits are a measure to safeguard returns on long-term investments from the rise in inflation. The indexation benefit for an investment is calculated using the Cost Inflation Index (CII) value and once applied, gives investors the benefit of paying lower amounts of tax on returns from investments.
A very prominent type of income fund is the Liquid Fund. These are short term funds where the risks are low and the returns are easily liquefiable i.e. can be received in the form of cash.

Balanced Funds

These are the hybrid funds that incorporate equity as well as debt investments. The intent is to generate high income from the equity portion and get steady returns from the debt portion. Moreover, the presence of debt instruments also helps to balance out any losses that you may face from the equity investment.
However, here, the asset allocation is primarily based on different objectives. For example – a Monthly Income Plan is a type of balanced fund where a large percentage is allocated to debt instruments and the remainder to equity instruments. This allows fixed returns at a low risk and a decent exposure to get gains that can be achieved through stock investments.
Other forms of balanced funds might focus more of equity instruments as the objective there would be higher gains, even if the risk level increases a bit.

Index Funds

Index funds are designed to replicate the portfolio of a particular market index like the NIFTY or the S&P BSE 500 Index which expands to Standard & Poor’s Bombay Stock Exchange 500.
Before we go any further, the difference between active and passive management requires explanation. With the market fluctuations involved, most mutual funds are actively managed i.e. constant buying and selling is required to stay on course to attain the objective of the fund.
Now since the index fund follows the pattern of a market index, they do not need to be aggressively monitored and hence, are passively managed. The risks involved are in proportion to the fluctuations of the index it is following.

Gilt Funds

These Funds invest exclusively in government securities where there is null risk by default. However, the values of these fund units are dictated by market volatility and the risk-return ratio for these funds can be seen in the same vein as equity funds.

Global Funds

Global Funds invest in debt and equity instruments in a number of countries across the globe and is an additional layer to the domestic diversification of your capital. These funds are meant for those investors who have a good reading of international markets and an understanding of the country-specific risks involved.

Fund of Funds

This type of fund invests in mutual funds instead of assets. In other words, your investment is diversified among mutual funds rather than market instruments. Here, the performance and returns of the Fund of Funds will be affected neither by the best performing nor the worst performing fund, but the average of all the funds within the portfolio.
As is evident, there is no dearth of options as these different types of mutual funds cater to different investment objectives. So if you are thinking of investing in a mutual fund, ensure that you understand the market risks as well as the fact that the mutual fund selected is in tune with your objective of investing in it.

Now that we have understood different types of mutual funds in India.

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What Are Balanced Funds & Its Advantages

 

The intent to get aggressive returns is what drives you to invest in equity and equity-oriented mutual funds. On the other hand, if you believe in taking lower risks then it is very likely that you will opt for debt-oriented investment options to have predictable returns and fixed income.

But if you want to draw the maximum out of your investment and yet not take high risk, then going for a Balanced Fund makes perfect sense.

Balancing your investment

A Balanced Fund (or a Hybrid Fund as it is known sometimes), gives your capital an exposure to both equity and debt instruments in good measure. By combining these two classes of investment, a Balanced Fund combines the best facets- low risk and higher returns. A Balanced Fund can be primarily of two types based on asset allocation –

Equity Balanced Fund

In this type of fund, the majority of the capital (generally 70-75%) is invested in equity instruments with the rest for debt instruments. The higher risk that the equity investment holds is balanced out by the percentage invested in debt instruments.

Debt Balanced Fund

Here, the motive is safer investment while still taking advantage of returns from the stock market. The equity-debt ratio here is practically the opposite of an equity-oriented Balanced Fund.

Advantages of a Balanced Fund

• A Balanced Fund offers the best of both worlds – the potential of higher returns from the equity component and stability of the debt component. This makes Balanced Funds less volatile.
• The returns that you get from Balanced Funds are risk-adjusted. This factor is governed by how Fund Manager allocates the assets. By selecting small cap and mid cap stocks, the gains that the equity component can give are much higher and the associated risk is well taken care of by the debt investment.
• If your Balanced Fund is equity focussed and for the long term, then the major part of your investment is exempt from long term capital gains tax and the debt component comes with indexation benefit for holding periods beyond a year. That makes Balanced Funds a good tax saving investment as well.

From a broader outlook, Balanced Funds tick all the boxes for a Conservative investor who wants to benefit from the stock market as well as fixed income options and it represents a very sensible long-term investment option that can give steady yet promising capital appreciation and provide respectable returns for the later phase in life.

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Long Term Vs. Short Term Equity Investments

 

For a salaried or working individual, it is very important to invest to get capital growth on their money. Investing in a timely manner plays a key role in accomplishing that objective as it ensures that your hard earned income is accumulated periodically for good returns and a more fruitful utilization when required.
At present, there are numerous investment opportunities available and each one of them is suited to a separate investment profile as well as saving capabilities.
Based on time-frames, investments can generally be classified into two types: –

1)      Short-Term Investments (3 months-5 years)

As the name suggests, these are investments that can be made in the short term with considerable appreciation of your money in mind. Some of the prominent short-term opportunities are:

• Bank Fixed Deposits

  Considered conventional and very safe, Fixed Deposits is a good option if you have fixed and guaranteed short term returns in mind. With a lock-in period of 1-3 years, different banks offer returns ranging from 6-9.5% annually.

• Non-convertible Debentures/Corporate Deposits (NCDs)

Unlike Fixed Deposits, there is a need for a better financial understanding and having a risk taking appetite while investing in NCDs owing to uncertainty in returns. With that said, the prospective returns are higher than Fixed Deposits and the lock-in terms can be as low as 6 months.

Fixed Maturity Plans (FMP) – With no constraint in the lock-in period, you can invest in FMPs from 3 months to 5 years. These are investment schemes floated by mutual funds and are closed-ended. The assets that a fund households in its investment portfolio for such schemes have similar maturity periods which can give you decent returns with less exposure to market risks. An additional benefit from the tax saving angle is the indexation benefit that you get in FMPs.

• Short Term and Ultra Short Term Mutual Funds

  The investment portfolio in this type of mutual funds is predominantly in fixed deposits and other short term investment assets. Lock-in term is the standard 1-3 years with returns of up to 8%.

2)      Long-Term Investments (Beyond 5 years)

Long-term investments play a crucial role in the bigger scheme of things wherein you might need accumulated amounts; for e.g. for education or buying property. Therefore, it is imperative for you to have a cohesive know-how of the kind of investment option that you are opting for. Here’s an overview of the most common long-term investment options: –

• Employee Provident Fund/Public Provident Fund

Provident or pension fund is a savings scheme offered by a company to an employee in which a small portion of the employee’s monthly salary is deducted and diverted into his Provident Fund which can be withdrawn by an employee on retirement. Apart from this, an employee can also put up to 1 Lakh a year in Public Provident Fund.

 For self-employed individuals, Public Provident Fund is the universal option.
With an interest rate of 8.75% for EPF and 8.7% for PPF for Financial Year 2013-14 , EPF/PPF presents not only a good savings and tax rebate tool, it is also a sensible retirement planning investment.

• National Savings Certificate

  An offering by the Post Offices in India, it is one of the traditional investment tools and highly preferred by senior citizens and those who are looking to invest small amounts for longer lock-in periods. You can invest anywhere from 100/- to 1.2 Lakhs with a 6-year maturity term. The annual interest rate on NSC’s is 8% and not subject to market fluctuations. Also, the interest is not tax-free at the time of payment at maturity.

You can purchase physical NSC’s in denominations of 100, 500, 1000, 5000 and 10,000 and some post offices also have the option of offering them in a Demat form.

• Bonds– Bonds are debt instruments issued by companies and the Government to fund their functional and infrastructural needs as well as fund development initiatives. The inherent risk involved is lesser than equity investments. A good example of a Bond as a long term investment option is the Indian Government 10 Year Bond which is currently giving an interest rate of 8.86% since January 2014.
• Real Estate – Investment in real estate is a very smart investment option as the appreciation in the value of real estate has been very encouraging in the recent years. As an investment option, it represents good growth and is also a substantial asset to have for the later phase of life.
• Equity Shares – Investment in a company/equity entitles you to shares as well as voting rights as a shareholder but this long term investment is a calculated risk. Looking at it from a hypothetical perspective, a company that you invest in might flourish ensuring a high return on equity or might fold up resulting in a major loss. Simply put, it is a long-term single entity investment option that is entirely dependent on a company’s profitability.
• Mutual Funds – The inclination towards mutual funds investments in India is low at the moment and a major reason behind it is the lack of awareness amongst the masses. Mutual Funds are subject to market risks but with investment in a very diverse asset portfolio and professional fund management of your investment, returns on mutual fund investments are favorable more often than not.

Attaining a Balance
As an investor, it is important to achieve a balance in the ratio in which you make short-term and long-term investments. A good understanding of the available options as well as realistically determining your financial needs in the next few years can really help you to allocate your money in short-term and long-term investment options sensibly. That way, you will have sufficient capital for your short-term needs as well as steady growth on your capital in the long term.

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Important Principles Of Financial Planning

 

So, how should you conduct your financial life in the New Year? Read on to know the path that you must follow…

Well, another year has just rolled over. We, at Axis Bank wish that all your dreams are fulfilled in the coming year. Bearing this in mind, to ensure that the New Year keeps you financially healthy indicated below is what Budget could have in store for you and how you should adapt yourself to it…

• To begin with, it is NOT the time to replace your financial plan with a brand new one as you would do with a calendar. It is important to maintain continuity even while making small adjustments and course corrections to your existing plan.
• Your income may not witness the same jump in 2013 as it has over the past few years, simply, because corporate India is still reeling under the slowdown that our country has been witnessing off-late. So, you may need to tone down your expectations on income growth.

• On the expenditure front, the double digit inflation at the consumer level still remains a disturbing reality. You would do well to wisely tighten your belt even while hoping for some respite.

• Your savings plan may have taken a hit recently due to the unrelenting price rise. It’s time for you to put it back on track by curbing expenditure. The lethal combination of low income growth and high expenditure growth could adversely affect your future financial health. Maintaining your target savings rate should be the top priority. Remember, financial prudence demands that you pay yourself first.

• Your investments could need a bit of tweaking. Interest rates are likely to drop in the New Year. You would do well to lock into fixed deposits now at attractive rates. Gold has been on an uptrend for the past decade and may justify some caution. Equities have gone nowhere since 2007. Its recent performance has been inspiring and could well throw a pleasant surprise in 2013. Make sure you have sufficient exposure so that you do not miss the bus. Real estate prices have remained at uncomfortable levels recently and so may be the case in 2013.

• Borrowing costs are likely to come down in 2013 in tune with the general fall in interest rates. However, this should not stop you from trying to repay your loans and striving to become debt free at the earliest.

• Your current insurance could need some review to account for major changes in your family/professional circumstance and in your income/expenditure pattern. Any increase in liabilities should also be taken into account. And, do remember to pay your premium in time to keep your policies alive.

The fundamental principles of finance remain unchanged as ever. Just a bit of dynamism is what would be required to tide over the temporary circumstances. And, here’s wishing you the best of financial health in 2013!!!

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Should You Prepay Your Mortgage Or Invest?

Home loan

The home loan not only offers tax benefits but also helps build an asset that has the potential to appreciate in value – property. The tax benefit is not only available for interest payments but also for principal repayments. Besides, if Rakesh is a first time home buyer, he gets an additional tax benefit of Rs 1 lakh on the interest paid on the home loan. In other words, the home loan should be left untouched. Rakesh should continue to pay the EMIs as and when they become due.
The tax benefit is not only available for interest payments, but also for principal repayments.

Car loan

Unlike a home loan, a car loan does not help build an asset that will appreciate in value. In fact, once the car is purchased and starts being used, it will only depreciate in value. Besides, car loans are expensive. Clearly, Rakesh should repay the entire car loan. If the bank levys a prepayment charge on Rakesh, he should negotiate this with the bank and either have it reduced or cancelled. In any case, even if there is a prepayment charge, he should pay this off and repay the entire loan.

Invest the balance

Now Rakesh will be left with Rs 11 lakh (Rs 15 lakh – Rs 4 lakh used to repay the car loan). He should invest this money. In fact, this money will provide Rakesh security that in case of any unfortunate circumstance due to which he is unable to repay the entire home loan, he can use these funds to do so. Rakesh should invest this money based on his risk-taking capacity and tolerance (either invest in gold, debt, equity, or partly in each of these options).
Endnote
Not all loans are bad. If a loan helps you build an appreciating asset and offers you tax breaks on capital repayments and interest payments, it’s worth holding on to it. However, repay loans that are pure expense loans with no tax breaks.

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Securing Your Child’s Financial Future

 

How much life and medical cover is required for you and your children were some of the topics discussed in this week’s personal finance call-in show Smart Money. Host Vivek Law, editor, Bloomberg TV India, and Monika Halan, editor, Mint Money, also talk about strategies to build corpus in the long term. Edited excerpts from the show aired over the last weekend:
Vivek: Monika, when you have a child, how do you plan for the child’s future?
Monika: Most people get really worried when there is a child in the family and they start knee-jerk investment plans and unfortunately they all end up buying child plans. But I think we need to look at it a little differently. Step back and look at what is the purpose of financial planning for the child and it is always not about the products that you are buying. Financial products really come at the end of the process. So I would like to break it up into two parts. One, you look at protection, and the second, you look at products. So when we look at protection, the first thing is to insure your life and not that of the child. When you buy a child plan, you end up insuring the child’s life and if you as the breadwinner is not there, then the child and the family has the money to go on for education and the other goals. So in protection that’s pretty much the first thing.
Vivek: That would mean you take a basic term cover for yourself as a parent?
Monika: Yes, basic term cover which should be 8-10 times the annual income. The second of course is a medical cover. You are protecting not just the child’s medical bills but also your savings which gets depleted due to an emergency.
Vivek: So how much should that cover be? I know lot of parents who have Rs.1-2 lakh medical cover from their employer and they think it is enough.
Monika: Per child, I would say have between Rs.2-3 lakh. If you do not have your office giving you an additional cover, I think it makes sense to take a family floater on top of that, maybe another Rs.5-7 lakh. So that in case there is an emergency, you are prepared. One more very important thing which most of us don’t do is to write a will. It is a very scary process when you sit down with your partner. We have been through the process, it really makes you think of what will happen to your children when you are not there to drive the money which may come as a large corpus. So actually simulate it and then build that plan, write that will, put down very detailed plan of when that insurance money comes how is it to be used, what kind of investment products are to be used and then only make that plan.
Vivek: What about the whole process of corpus building? It will take 15-20 years. What’s the best way?
Monika: The Public Provident Fund is a really fantastic tax-free instrument. Exhaust the limit of Rs.1 lakh. You also need equity exposure. You have large-cap and balanced funds for that. Since you are looking at 15-20 years, you can have mid-caps if you have risk appetite. And I wouldn’t go against a 5-10% exposure in a gold fund. So these are your three basic building blocks. The second part is in whose name is the money? I am going to take a fairly radical view here and say do not buy it in the child’s name. Are you sure what your child is going to be at 18 or 20 years of age? What if he wants to blow it up in a start-up and you want him to study further? So its not that you want to hold him back but possibly that maturity may not be there to deal money. So make the investments in your own name.
Vivek: So there should be four categories—large-cap, balanced, mid-cap and gold funds. However, the number of schemes could vary depending on the amount of investment or should it be no more than 6-8 anyway.
Monika: That’s right. No more than 6-8 funds because you don’t need that much diversification.
Audience queries
Vivek: Sreekar, you seem to have bought a lot of mutual funds?
Sreekar: There were a lot of recommendations from family friends. Hence, I put lot of money in different funds.
Vivek: Right, but I think way too many funds, isn’t it?
Monika: What we see in your portfolio is something that we see in a lot of other portfolios. Sreekar, I have looked at your SIPs and it seems that you are a very high-risk investor. Do you see yourself as one?
Sreekar: Yes, you are right because I do not have dependants. But I am getting married soon.
Monika: You will have to cull out two of the mid-cap funds and buy a large-cap fund, even maybe a balanced fund so that there is more balance in the portfolio. Look at funds as a part of your diet. You can’t just have proteins. You will need the moderating influence of carbohydrates. Don’t just go fully into one part of the market. Spread it out and when markets are doing well and when mid-caps are doing well, it’s very attractive to buy those extremely high-return funds but that’s where portfolio diversification is important and in times like this, if you had two large-cap funds, your portfolio wouldn’t be in the red today. I think that really is one of the big changes that you need to make. You have another question on systematic transfer plan. What exactly is your need?
Sreekar: There is a lump sum in my savings account. I want to move it to an account so that it can take care of my SIPs and I am also planning to buy a flat.
Monika: For people who may not know, a systematic transfer plan is a way to make your lump sum get invested slowly into an equity product and not at one shot. You buy a debt fund and then slowly transfer that money at periodic intervals into equity. It’s a way of averaging out the price. In your case, you seem to be in the 20% tax bracket. The fund for you is a ultra short-term debt fund.
You will pick the growth option and you have to remember that you will buy the ultra short-term debt fund from the same fund house whose equity plan you want to transfer the money to.

Courtesy: www.livemint.com

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Factors You Should Consider For Prudent Asset Allocation

 

While all of us aspire to create wealth for ourselves and for the comfort of our families, in today’s time of rising cost of living, it is imperative to understand a host of factors before one binges into a risky asset class such as equities to achieve one’s life goals. Although, equities appear the best investment option to make the most of in a stock market rally, it is not very wise to nest all eggs in one basket. This is sometimes comprehended by people only in conditions of adversity (such as a sharp decline in stock market), when investors have parked a large portion of their corpus in a particular asset class (in this case, equities).

It is vital for you to understand that not all assets move in the same direction at the same time. If equities are witnessing a bear market, it is unlikely that other asset classes such as gold, debt instruments, real estate will also be witnessing a down-turn at the same time or vice-versa. Hence it is best to invest in more than one type of instrument to improve your chances of achieving your long-term goals with minimal turbulence. You see, planned asset allocation acts as a shield to protect your wealth during uncertain economic conditions and market volatility.
Allocating your hard earned money wisely…
Well, here are some factors which one must take while you intend to allocate your assets – hard earned money wisely, as they provide a comprehensive picture.

• Your Age:

Your age is an important factor that you must consider while deciding your asset allocation. If you are a young investor of say 20-30 years, you can consider allocating a large percentage of your portfolio in risky assets, such as equities. Being young gives you ample amount of time and opportunities to recover from any possible setbacks in the value of the portfolio. If you belong to the middle age group (30-55 years), you must aim to create a moderately risky portfolio and should not invest your entire savings in equities. On the other hand, aged investors, nearing their retirements (55 years & above), should follow a highly conservative approach when planning their asset allocation and prefer debt or fixed income instruments so as to preserve the principal amount.

• Your Income:

The amount you invest is a function of the amount of income you earn. Any appraisal in earnings, will impact your discretionary income and hence the amount of investment. If you are into service or employment, drawing a fixed salary every month, you can allocate your savings systematically to both risk and safe instruments depending on your age. However if you are in the business industry, your profits and losses are not fixed in nature. While higher profits will lead you to expand your business or invest in various financial instruments, a year of losses will have a direct bearing on your ability and capability to invest. Hence, it is imperative for you to allocate your assets keeping in mind your future income growth potential.

• Your Expenses:

In order to keep your financial health in pink in the long-term, it is important that you live within means and curtail your unnecessary expenses. It is this strategy which will enable you save a large portion of your monthly earnings, which can be deployed in suitable asset classes (depending upon your age, income, risk appetite and nearness to goal). We recognize that while certain expenses such as loan repayments, rent, grocery bills etc. cannot be avoided; you can always stream line few of your unnecessary and extravagant expenses. This will enable you to increase the net free cash available for asset allocation, which in turn if invested wisely can enable you to create more ‘wealth’ and fulfil your financial goals.

• Nearness to your financial goals:

Your nearness to your financial goal is also relevant while doing financial planning. If you are many years away from the financial goal, you should ideally allocate maximum allocation to the equity asset class and less towards fixed income instruments. So, say you have a financial goal of getting your daughter married well after 20 years from now; it would be prudent to invest in equities (either through the direct route or through equity mutual funds). It is noteworthy that the concept of allocating funds to different asset classes based on your nearness to goals helps not only to diversify risks across different asset classes but also in rebalancing your portfolio when you are closer (in terms of number of years) to the achievement of your financial goals. When you are drawing nearer (3 years) to your financial goal(s), you must shift your corpus to fixed income instruments to safeguard and avoid risk asset classes to preclude wealth erosion.

• Your Risk Appetite:

Your willingness to take risk which is a function of your age, income, expenses, nearness to goal, will be an important determinant while framing your financial plan. So, if your willingness to take risk is high (aggressive), you can skew your portfolio more towards the equity asset class. Similarly, if your willingness to take risk is relatively low (conservative), your portfolio can be skewed towards fixed income instruments, and if you are a moderate risk taker you can take a mix of equity and debt respectively.

• Your Liabilities:

If you as an investor have high liabilities, then even though you may be willing to take high risk, your financial condition would not allow you to take high risk. You would be a risk-averse investor. Irrespective of age, willingness to invest, nearness to his goals, risk tolerance or any other factor, you will be forced to only make safe investments as you cannot afford to let your investments suffer any setbacks due to market swings. Also, you must avoid investing borrowed money in risk assets such as equities as any losses endured here might worsen your financials.

• Your Assets:

As an investor, it is imperative to first analyse your existing portfolio before allocating funds further. For instance, if a huge chunk of your portfolio is dominated by real estate, then you must diversify your assets in a manner that reduces your allocation to risk assets such as real estate or equities and increase investments in safe instruments such as debt, fixed deposits and cash.

Diversification of assets gives you a lee way to counter market uncertainties and acts as a stabiliser for your portfolio when a particular asset class crashes. Broadly an effective asset allocation offers the following 4 benefits which are:

1. Lowers your investment risk
2. Reduces your dependency on single asset class
3. Protects your investments during turbulent times
4. Makes timing the markets irrelevant for you

What should be your Ideal asset allocation?

Under ideal circumstances…

Investors whose objective is to achieve long term capital appreciation and have an aggressive risk appetite can invest upto 70% in risk assets such as equities and related instruments, and the remaining 30% in safer asset classes such as debt, fixed deposits and cash instruments.

Moderate Investors, who aim at providing some stability to their portfolio along with capital growth, must invest upto 60% in equities and balance (40%) in debt, fixed deposits and cash.

Conservative Investors’, who prioritize the protection of their capital must upto 70% in debt, fixed deposits and cash, while the rest can be diversified by investing in quality equity instruments.

However, before you follow this ideal asset allocation, be cognisant about the aforementioned facets which we discussed. Asset allocation safeguards the overall value of your portfolio from the misfortune of any particular asset class. It is not a one-time process and you must keep reviewing your asset allocation from time to time to ensure it is in line to achieve your financial goals.

This article has been authored by PersonalFN, a Mumbai based Financial Planning and Mutual Fund research firm known for offering unbiased and honest opinion on investing.

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