+

Optimal financial planning via asset allocation

Years ago, an accomplished sailor named Arun decided to embark on a solo voyage across the ocean and before setting sail, he meticulously balanced his boat with the right mix of supplies: food, water, navigation tools, safety gear, and backup fuel. When a storm hit midway, Arun's well-balanced preparation proved invaluable. Despite the rough seas, his boat remained steady, and he navigated through the storm safely. Had he overloaded with just fuel or neglected safety gear, the outcome could have been very different.

Investing is much like sailing through unpredictable waters. The right balance—much like Arun's carefully stocked boat—can make all the difference between weathering a financial storm and capsizing. This is the essence of asset allocation: balancing different asset classes, including equities, bonds, real estate, and gold, to ensure that your financial boat remains steady, no matter what the market weather brings.

Indeed, as an individual, the best way to undertake financial planning is through asset allocation, which is aligned with your personal investor profile. Your profile includes aspects such as your risk appetite, return requirements, time horizon and investment goals. For instance, if your time horizon is 10 years down the line, and you are currently in your prime, with 10-15 more years of work ahead of you, you can allocate a larger portion of your corpus to high risk - high return assets like equities, while keeping the allocation to safe haven assets like gold and bonds lower, and vice versa. This will permit you to participate in the growth of different markets, while also mitigating the risk through effective diversification.

For lay investors, doing asset allocation on their own can be challenging. An easy solution is investing in asset allocator mutual funds like the ICICI Prudential Asset Allocator Fund (FOF) which invests predominantly between equity, debt & gold mutual fund schemes/ETFs based on in-house valuation model. As of August 30, 2024, the fund delivered a one-year return of 22.28%, with a 3-year CAGR of 14.02% and a 5-year CAGR of 15.21%. Also, under the new taxation rules introduced in Budget 2024, long-term capital gains are now taxed at a fixed rate of 12.5% for this fund. Investors can take advantage of this by holding the fund for at least 24 months, optimizing their after-tax returns.

facebook twitter