Asset allocation is one of the strategies of taking benefit of market place fluctuations to maximise wealth creation. Through asset allocation, one may perhaps invest at a low market place and book profit at a higher market place for greater added benefits.
Asset allocation requires investing in various asset classes – e.g. equity and debt – at a particular ratio and evaluating the investment portfolio periodically to verify if the ratio is maintained. In case the ratio gets disturbed, assets are to be re allocated to restore the ratio.
An asset allocation ratio may perhaps get disturbed most probably by market place fluctuations. When the markets go up, the equity portion increases and it decreases when the markets go down.
So, rebalancing at a higher market place would involve shifting of assets from equity to debt to restore the ratio, which outcomes in profit booking at higher NAV. On the other hand, rebalancing at a low market place would outcome in greater investment at low NAV, as assets are shifted from debt to equity.
But to maximise return by asset allocation, you need to have to 1st decide a ratio as per your danger tollerance capacity and choose how a great deal assets to be allocated in debt and equity. Thereafter, you need to have to overview your portfolio periodically to keep the ratio.
How to handle your finances for prosperity, wealth creation
You may perhaps either do the asset allocation activity oneself or invest in a Hybrid Mutual Fund scheme, exactly where this activity is completed by the fund manager.
Here are the positive aspects and disadvantages of carrying out asset allocation oneself and investing in a hybrid fund:
Convenience
Investing in a hybrid fund is more hassle-free, as to allocate assets oneself, you need to have to have time, expertise, interest and sources.
Taxation
You may perhaps have to spend capital achieve taxes for carrying out frequent asset reallocation oneself, although the reallocation by a hybrid fund is exempted from the tax.
Choice of assets
You may perhaps decide on the ideal assets (funds) by carrying out the allocation oneself, although the fund manager will only have the manage more than assets when you invest in a hybrid fund.
Return
By deciding upon the ideal debt and equity assets and carrying out the asset allocation effectively, you may perhaps create greater return than that of a hybrid fund.
Cost
Investing in debt is significantly less pricey than equity investments. But hybrid funds – specially aggressive hybrid funds – charge the expense of all equity funds even as they have considerable portion of debt in the fund portfolio. So, you may perhaps save some charges by carrying out asset allocation oneself.
Conclusion
While investing in a hybrid fund is more hassle-free and tax effective, you may perhaps create greater return in a expense effective way by carrying out the asset allocation oneself, offered you have sufficient time, expertise, interest and sources for the exact same. If you can not do the asset allocation effectively, it is much better to outsource it by investing in a fantastic hybrid fund than losing the added benefits.