The importance of asset allocation

Having an asset allocation plan is crucial to achieve your financial goals. In the long-term, it is the discipline with which you stick to your
asset allocation plan that will decide your returns. “The difference in returns between the best large-cap mutual fund and a fund that is ranked No.10 is too small to really bother me,” says Jaideep Hansraj, executive vice-president of Kotak Mahindra Bank. What makes the difference is the tendency among investors to be driven by greed and fear, and change the share of assets in their portfolio. So it may happen that an investor who wants to predominantly be in equity may end up with 80% of his investment in debt when the Sensex fell to 8500, and a conservative investor may end up holding 90% equity investments as a result of markets pushing up the value of his equity holdings. This indiscipline, may lead to returns dwindling in the long term, and reducing the ability of your portfolio meeting your financial goals. If you can’t approach a financial planner to determine your asset allocation for whatever reason, there are some mutual funds with a readymade solution. (See table.) The offerings from Templeton, Birla Sunlife and ICICI Prudential mutual fund help you invest as per a predetermined asset allocation. If you know your risk appetite, you can consider options from Birla Sunlife Asset Allocation funds or ICICI Prudential Advisor series funds.