Asset Allocation Strategies In Mutual Fund Investments

The Stock Market offers the maximum returns on your investments, but it is also volatile. This makes most investors nervous. However, if you plan your asset allocation strategy carefully, you get to leverage the volatility in your favour. For this, you must understand your risk appetite carefully. Your short and long-term investment goals also play an essential role in streamlining your Mutual Fund Investment Plan.

Combining assets pertains to creating a balance in your portfolio. This way, you avoid the risk concentration in one asset class. Spreading the returns across Bonds, Equities, Debt Funds, Money Market Instruments, etc., is the essence of the asset allocation strategy. It is a subset of the diversification process. Qualified fund managers get appointed to carry out the process for you. But it helps to understand the different strategies employed for tracking your investments.

Risk profile based

This method primarily gets based on your risk tolerance. Here, you use your risk appetite to determine the distribution of funds in different asset classes. To make it easier, you should identify which category you fit into based on your risk tolerance level. They include conservative, income-based, growth-oriented, balanced, and aggressive. Use this to decide the portfolio structure when you invest in Mutual Fund.

Age-based

This is not a widely used approach. Nonetheless, it is an effective strategy to understand where you stand in the investment journey. As the name suggests, the primary consideration is your age. You decide the percentage of Equity Funds in your portfolio based on your age. The logic behind it is the potential of your earnings depending on the years left until you retire.

Dynamic

As aware, the Stock Market is volatile. It keeps fluctuating depending on the market conditions and economic forces. This, in turn, affects the returns you earn on your investments. The best way to tackle the uncertainty is by adjusting your portfolio. That is precisely what the dynamic strategy aims to do. When a particular asset is expected to perform well, you increase the allocation to that asset and vice versa. Track this through Mutual Fund apps.

Strategic asset allocation

Your portfolio should follow a basic policy. This involves assigning a proportion to each asset class. You do this based on the expected returns. For instance, if you want higher returns, you opt for a higher Equity percentage and combine it with Debt instruments, Bonds, Real Estate, and other schemes in varying proportions. You may also include long-term funds like ELSS (Equity Linked Savings Scheme) for tax-saving.

Tactical

This strategy aims to benefit from the short-term opportunities in the Stock Market. The short-term plan predetermines the asset mix considering the market timing to give you short-term profits. You should opt for this if you plan your leverage by hedging the market.