Investors beat volatility with asset allocation funds

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Mumbai: Extreme volatility over the past few months in the three most popular asset classes for ordinary people – stocks, bonds and gold – has prompted investors to increase asset allocation funds. These mutual funds allocate investors’ money wisely among the three asset classes.
The funds also attempt to provide protection against the extreme price volatility of these assets. Financial planners say these funds have historically given higher returns than fixed deposits (FDs), but at lower risk.
Consider this: In the year to March 2021, total assets managed by these funds jumped nearly 47% to Rs 15,551 crore. Investments in asset allocation funds of funds also increased, at an even faster rate of 61%, to Rs 11,475 crore, according to official data. In comparison, the fund industry’s total assets grew by 41.4% to Rs 31.4 lakh crore.
Financial planners say that with increased market uncertainty, the importance of asset allocation funds has grown. “A good asset allocation strategy helps investors better manage volatility. Such a strategy generally helps investors earn more than pure fixed income assets (bonds, FDs, etc.)…it helps reduce portfolio risk significantly,” said Gajendra Kothari, Managing Director and CEO of Etica Wealth Management. “And by going the mutual fund route, one could adopt the same strategy in a lower cost and tax-efficient way,” Kothari said.
HDFC Mutual Fund’s lead fund manager, Amit B Ganatra, manages the company’s asset allocation fund-of-funds, whose NFO closed on Friday. He said the program would aim to generate capital appreciation by managing asset allocation between equity-, debt- and gold-focused ETF programs.
“The fund aims to follow a systematic and process-driven approach to asset allocation using a financial model based on valuation parameters. The idea is to dispassionately run an active asset allocation strategy in a disciplined manner with periodic review and rebalancing, which otherwise becomes a challenge for investors,” Ganatra said.
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