Hello Readers!
People when plan to invest, their high paid interest is only towards gaining as high returns as they can get, they are only concerned with wealth creation. Neither pay attention to goals for which they are investing, nor they look over which class of asset they are investing. And through this strategy, they end up investing in a wrong asset class for their concerning goals. Ultimately, they either stop their investment or redeem it when their needs are not fulfilled.
Suppose you need to go to America from Mumbai, which means of transport you will use, a train or an airplane? Obviously, an airplane, there’s no doubt, but in case you must go from your office to home that is approx. 10 km away, what you will use, a plane or a car?
These questions are not to check your sensible knowledge but make you understand that different investors have different goals, some have short, some have big, some have middle goals, and similarly, for each goal to achieve, there are different asset classes where one should plan their investment.
Are you choosing the right way?
At the time people plan their investment, they often end up choosing the wrong asset class for their goals. Most people begin their investment directly without first considering the asset class they need, instead, their primary need from their investment is either high returns or the safety of their savings. And as a result, when they fail to reach their goal and loose out their money, their sentence is like, “investing money is the worst thing and very much risky”.
It is always advised to investors, whenever you plan to start your investment in different asset classes, be it FDs or Insurance Plans or Mutual Funds, always ask three basic questions from yourself.
- Are my savings aligned with any financial goals that I may have?
- Do I know which asset class (cash, debt, equity, real estate, alternatives) is ideal for my financial goals?
- Do I know what asset class does the instrument I am investing in belong to?
If you get a no from you for any of the questions, to need to reconsider your investment plan, and first need to understand the different asset classes. Well, it’s not too difficult to understand them.
Different Asset Classes
1. Cash: An example of this asset class is a Bank savings account and some very short-term debt funds that are overnight funds. Returns from this asset class are less than 6% and at the same time, they have the least amount of volatility associated.
2. Fixed Income Asset Class: Examples of this asset class is FD (Fixed Deposits), Bonds, Some debt funds, and insurance plans. Their sub-asset classes are liquid funds, short-term debt funds, medium duration debts funds, and long-term debt funds (gilt funds, G-sec funds). returns from these asset classes are between 7-8% and are associated with low-medium amount of volatility.
3. Equity Asset Class: Examples of this asset class in Stock and shares, equity mutual fund, ELSS, and ULIPs. Returns from this asset class are very high and are 12 % or more over the long-term. At the same time, this asset class is associated with very high volatility.
Which Asset Class Is Meant for Which Goal?
Asset class for different goals is decided based on the investment tenure required by the goals. For long-term goals, like retirement, child education, child marriage, equity asset class is considered the best, while for short-term goals like buying a car, planning a foreign trip, and more, a Fixed income class is considered the best.
While you choose different asset classes for your different goals, go diversifying your portfolio with different sub-asset classes. They help you stay aligned with the kind of growth or stability; you want from your investments.
Always remember that it doesn’t matter what is the number of asset classes you have added in your portfolio. But it does matter whether you have chosen the right asset class for your different goals, and each asset class or sub-asset class in your portfolio is linked with a specific goal.
Last but not the least, while you plan your investment in the future, do understand the different asset classes, consider your goal along with your risk capacity and then pick out the right asset class fund to invest for your goals. Investing through this strategy will not only raise good returns for you but it will also make your investment journey a great experience for you.
For any kind of query, you can contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.
Happy Investing!
(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).