Hello Readers!

We cannot deny the fact that each and every individual has their asset allocation, whether organized or not. It can be in various forms like in the form of investment in different types of mutual fund schemes, in a few bank deposits, own some gold or property, and in other forms.

We all know that asset allocation refers to diversifying your money across different financial securities and assets.

Mutual fund investors also have options to invest in different kinds of mutual funds, like equity, debt, and gold. As per experts, investors should diversify their money among various mutual fund schemes, this helps them reduce the risk from their portfolio and enhance the overall returns from their portfolio.

Well, investors can diversify their mutual fund portfolio in two different ways, they can invest in equity, debt, and gold funds separately or they can combine these assets through hybrid funds with pre-determined asset allocation.

Investors may find the latter choice a much easier way to diversify their money, but here are some facts that one must be aware of before they choose to go with the latter option.

Hybrid Funds Aren’t Customized

Hybrid funds are a blend of both Equity funds and Debt funds, some hybrid funds include other asset classes, combined with this blend. However, the proportion of assets in hybrid funds varies from fund to fund. Some hybrid funds have just 20%-30% of total assets in equity and others could go up to 60%-70%, rest in debt and other asset classes.

Basic point is, the proportion of different asset classes in hybrid funds is not customized, that is they are not planned as per the investor's requirements, in fact, it is by default. It is an investor who has to pick the hybrid funds that have their allocation in different asset classes, as per their financial need.

Change In Allocation Strategy

While in their investment journey, there might be instances when the investor feels to change their asset allocation strategy. Like for example, It may be that you got a new job with a higher salary and you choose to invest additional amounts only in equity because you don’t need any more debt. Or it is possible that an investor got hard hit from their equity investments, and now he wants to transfer all his allocation in debt funds.

For the above mentioned both cases, having a high allocation to hybrid funds will not help as the fund itself won’t change the allocation. The change in asset allocation within a specified range can happen for a hybrid fund, but it is driven by market value rather than what you need.

So basically, instead of relying on a pre-structured asset allocation, it's better for you yourself structure your asset allocation based on your needs, goals, and risk capacity. The benefit of doing it yourself is you can alter the asset allocation as per the changes in your inflows or outflows.

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 of future returns).