Hello Readers!

Long-term investment in Mutual Funds is choppy in nature, while they show an upward trend in the long-term, they do show up or downtrend in the short to medium term. During a down market, these volatilities increase more, and the swings are large.

At these times, the situation for most of the investor become stressful, however for those who have an ideal asset allocation, according to their age, this will help them reduce their stress level during this downturn.

Ideal Asset allocation for an individual depends on the life and wealth stage that they are at. Here through this article, we will be discussing it in detail, but before that, you must be aware of some of the basic rules of Ideal Asset Allocation, necessary irrespective of age.

  1. Every individual should have an emergency fund, comprising of 6-12 months' expenses, invested in liquid funds.
  2. Your Debt fund allocation should be for goals that you need to accomplish after 3-4 years and the amount should be equal to see your expenses through 2-3 years of no earning. If you are near to reaching your retirement, then this amount should be higher.
  3. Your equity allocation is designed to grow your wealth for the long term; thus, it should be higher in your early earning and higher-earning years.

AGE-WISE ASSET ALLOCATION

Please take professional help in deciding asset allocation that works for you according to your individual circumstances, current savings and investments, income level, and goals. Here we are giving aggregate details and ideas, based on which you can design your portfolio as per your age and wealth status.

FIXED INCOME

It is advised that an individual should have their fixed income allocated in Debt Mutual Funds, as these funds are a short-term investment with no lock-in period, low risk, low tax on withdrawal, and returns that are better than Fixed Deposits. Depending on the kind of investor you are and your objectives you have different options, to diversify your Debt portfolio with. To keep it simple and easy to understand, we have only discussed the recommended types below;

If you are investing in Liquid Funds, then your asset allocation based on your age may be as follows:

  • If your age is below 35: If you have invested in liquid funds, then do nothing with your existing funds, let them grow for your emergency needs. You can use your investment in liquid funds as emergency funds due to features like stable nature, freedom from market movements, and high liquidity. Every individual should park a portion of their income in Liquid Funds depending upon the certainty of their income. Remember the more uncertain their income the higher should be the allocation in Liquid Funds.
  • If your age is 35-45: If you have invested in liquid funds, then do nothing with your existing funds, let them grow for your emergency needs. You can use your investment in liquid funds as emergency funds due to features like stable nature, freedom from market movements, and high liquidity. Every individual should park a portion of their income in Liquid Funds depending upon the certainty of their income. Remember the more uncertain their income the higher should be the allocation in Liquid Funds. If you are the single income family with kids, your emergency fund should be equal to at least 12 months of your living expenses, including costs for EMIs and school fees.
  • If your age is 50-60:  You are now near to your retirement. This is the best time to increase your saving in Debt funds. You should ideally move your retirement corpus in a phased manner to debt mutual funds such as liquid funds when you are 3 years away from retirement.

If you are invested in debt funds other than liquid funds, then your asset allocation as per your age range should be as follows:

  • If your age is Below 35:  If you have your asset allocated in ultra-short-term or Short-term debt, then you must use this fund short-term needs that may arise. And if you have your assets allocated in debt funds associated with credit risk, then move to short-term and ultra-short-term funds at the earliest.
  • If your age is 35-45: If you have your asset allocated in ultra-short-term or Short-term debt, then you must use this fund short-term needs that may arise. And if you have your assets allocated in debt funds associated with credit risk, then move to short-term and ultra-short-term funds at the earliest. In this age range, you must not be associated with high-risk debt funds.
  • If your age is 50-60: Do check the funds if you have invested in Debt funds, In this age range you must be invested in ultra-short-term and short-term debt funds, given market volatility and the nature of debt funds.

EQUITY

Equity mutual funds are generally invested in for investors' long-term objectives or big goals, like retirement. The equity asset class has the ability to give good returns to its investor over long-term investment for 7 years or more, with inflation-beating capability.

Withing Equity Mutual funds there are various caps such as large-cap, multi-cap, large-cap and mid-cap, mid-cap, small-cap, etc.

The majority of the investors invest in Large-cap fund and Multi-cap Funds, the reason behind this is, large-cap mutual funds invest in the biggest, the most stable, and reliable companies, which results in low volatility in their share prices than compared to small-cap funds. Multi-cap funds invest across market capitalizations and try to be invested in both today’s stable market leaders and tomorrow’s market leader which are new or small in the market now.

If you are invested in equity mutual funds, you age-wise asset allocation should be as follows:

  • If your age is below 35 years: Currently the market is showing volatilities and continuous corrections, even if you have invested in best Equity funds, your equity fund must be showing low performance. However, we still suggest staying invested and continue your SIP’s, especially if you have chosen large-cap and multi-cap. Do not withdraw your equity funds unless you have an emergency fund to meet your emergency requirements. In case you don’t have one stop SIPs and use it to fund requirements you had not planned for.  
  • If your age is 35-45: It becomes hard to say invest in a downturn market, even if you have invested in the best Equity funds, your equity fund must be showing low performance. However, we still suggest staying invested and continue your SIP’s, especially if you have chosen large-cap and multi-cap. Ensure your emergency fund of 6 months of expenses including EMIs is fully funded first. In fact, at this stage you should boost up your Emergency fund as at this you have dependents, like your children, and they have expenses like school fees and others. Do not withdraw your equity funds unless you have an emergency fund to meet your emergency requirements. In case you don’t have one stop SIPs and use it to fund requirements you had not planned for.  
  • If your age is 50-60: At this age of life, one should have a mix of fixed income and equity products in their portfolio. Your allocation should be more in fixed income and equity part of your portfolio is to ensure your overall retirement corpus stays ahead of inflation. If you have more than 60-70% of your investment in Equity then I would suggest, transfer them in ultra-short-term and liquid funds, through SWP (Systematic Withdrawal Plan) and continue investing.

An Ideal Asset Allocation as per your age and wealth, helps you stay at peace during occasional underperformance. They do not affect you, your investment, and your objectives adversely.

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).