Asset Allocation – the Whats, the Whys and the Ultimate Solution

Asset Allocation – the term itself sounds a little ‘jargon-y’, complicated and a bit intimidating. What assets, what allocation and how one should go about it, is a common question that we in the financial world face. Let’s take these one at a time.

What is Asset Allocation?

According to Investopedia “Asset allocation is an investment strategy that aims to balance risk and reward by apportioning a portfolio's assets according to an individual's goals, risk tolerance and investment horizon. The three main asset classes - equities, fixed-income, and cash and equivalents - have different levels of risk and return, so each will behave differently over time.”

Whoa there. Sounds quite a mouthful, right? Asset allocation – like most aspects of investing – is actually very simple.

What the above statement means is that, when it comes to investing your hard earned savings, there are 3 asset classes that we consider in India - Equity, Fixed Income and Gold. The right Asset Allocation – or the ideal mix of your savings across these asset classes, depends on two main factors:

1. Your Risk Appetite
2. Your ultimate Financial Goal

The risk appetite refers to your ability of taking risk. Take for example a scenario where you put all the proverbial eggs in one basket (read your savings) and you end up dropping the basket which cracks more than 3/4th of your eggs. Will you pick up the remaining 1/4th and move on? Or will you be very upset over the loss of 3/4th? Therefore the next time you need to carry eggs, or invest your money, will you invest it in bits or will you do the same thing of putting all your savings behind one investment vehicle?

That is a measure of your risk appetite. If you believe in one of the above asset classes of Equity, Debt or Gold, will you put all your savings into it, take a massive risk and hope for the best? Or will you actually spread your risk and divide it evenly amongst the three, thereby reducing your risk?

Your financial goal is the most important determinant into how much of your money should go into which asset class. If your goal is 2-3 years away then the best investment vehicles for you could be fixed income instruments, if more than 5 years away then equities are a great choice. Gold is a great bulwark for your investments, think of gold as the fireman for your portfolio, you keep his number handy, but hope never to call him. Similarly invest around 10-20% of your savings in gold and hope that gold doesn’t go up, as gold tends to go up if equities are down and in case of political and/or economic instability in the world.

Why go through all this?

Great question! Why not just take all the savings and put it in equities or FDs? The reason is again, simple. Imagine that you have put all your money in stocks, markets are going up everything is great! Then imagine you needed the money and decided to remove it from the market…. and all this happens in October 2008 at the peak of the Lehman crises when all markets across the world had crashed and substantial chunks of everyone’s savings in the stock market were wiped out.

This is for equities; fixed income and gold are also cyclical in nature and can peak or fall depending upon global and local events. E.g. escalation in tensions with our rogue neighbour could lead to a fall in fixed income instruments too.

As an investor therefore, you need to put in the right amounts of money in the right asset class at the right time. The act of doing that is Asset Allocation. This is done so that at the time of need, when you are about to meet your financial goal, you have exactly what you have budgeted for and then don’t need to run from pillar to post to organize your finances.

The Ultimate Solution

There are multiple variables to consider when we want to get our asset allocation right. The 3 asset classes, the percentage by which your savings need to be allocated amongst the three. The constant monitoring of the funds in which you have invested etc. what if we told you that there is one fund that takes care of all these variables and gives you the added convenience of checking just one account statement...

Presenting the Quantum Multi Asset Fund or QMAF.

Quantum Multi Asset Fund is a Fund of Funds scheme which will invest in various Quantum Mutual Fund Schemes. These schemes of Quantum Mutual Fund will fall in to different asset classes of Equity, Debt and Gold. So, as an investor, you get a professional Fund Manager to take care of the diversification needs of your portfolio and have the ease of looking at the performance of one fund in one statement, rather than looking at multiple statements and trying to rebalance the portfolio yourself.

Here are 5 reasons why you should have the Quantum Multi Asset Fund in your portfolio:

1. 1. Diversification across asset classes to reduce risk and optimize gains
2. 2. Offers investors exposure to various assets in a single investment
3. 3. Rebalances the portfolio at regular intervals based on the performance of underlying assets, relieving the investor from monitoring asset markets
4. 4. Quantum Mutual Fund has strong research capabilities across various asset markets – equities, debt and gold
5. 5. As the scheme invests in schemes of Quantum Mutual Fund, no management fees is charged and only expense charged to the Scheme.

So start by taking a simple step towards getting your asset allocation organized!

Name of the Scheme & Primary Benchmark	This product is suitable for investors who are seeking*	Risk-o-meter of Scheme
Quantum Multi Asset Fund of Funds (An Open Ended Fund of Funds Scheme Investing in schemes of Quantum Mutual Fund)	• Long term capital appreciation and current income • Investments in portfolio of schemes of Quantum Mutual Fund whose underlying investments are in equity , debt / money market instruments and gold	Investors understand that their principal will be at Moderately High Risk<

* Investors should consult their financial advisers if in doubt about whether the product is suitable for them.

Disclaimer, Statutory Details & Risk Factors:

The views expressed here in this article / video are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of this article should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments. Please visit – www.quantumamc.com/disclaimer to read scheme specific risk factors.

Above article is authored by Quantum.

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