With the new financial year starting soon, it’s time to get all your finances and investments in place

January marks the beginning of new aspirations and resolutions for our life, health, and finances. It is that time of the year where you carefully think, plan and map out the things to do this new year to come closer to your dreams. With clarity of goals, it is time to map out your investments to fulfil your financial goals.

But where does one begin with all this investment planning? The answer is simple: with asset allocation.

Understanding the assets in asset allocation

Asset allocation is the skill of diversifying your investment portfolio across the various available asset classes: equity, debt, commodities, money market instruments and others. Each asset class has its own advantages and limitations and adds a different colour to your investment:

• Equity harnesses market volatility and converts it into opportunity. It moves with the market, going up and down, generating wealth over the long-term.

• Debt is conservative in approach and not as adventurous as equity. Though it brings in subtler returns than equity assets, it can help generate reasonable returns, especially when the market is in a volatile mood. This makes them a good choice for medium-term.

• Neither aggressive nor conservative, commodities, such as gold and silver , act as a hedge and can give reasonable returns. Acting as the “friends in need” when both equity and debt are caught up in the volatile mood swings of the market, allocating a small portion in commodities can diversify your portfolio risk.

Understanding these different characteristics of each asset class and diversifying your portfolio in such a way that each class balances out the risks of the other is the secret to asset allocation. Thus, maintaining a healthy balance in each class gives your portfolio the strength to not only withstand but also grow despite the changing tides of market volatility.

Things to consider when planning asset allocation.

When it comes to proper asset allocation, there are three main factors to keep in mind:

1. Balancing risk and reward

   There is no fixed, one-size-fits-all magic formula for composing a perfectly balanced portfolio. Taking a purely aggressive, equity-heavy approach can put your money at risk, while taking an overly conservative one can keep you from making optimum gains on your investment. Thus, the secret lies in striking the right balance of all asset classes that suit your risk preferences and help you achieve your financial goals.

2. Adjusting to market conditions

   When deciding the allocation of your portfolio across asset classes, take look at the market conditions. For instance, debt becomes a favoured asset class when interest rates are rising and equity when the economy is growing. Since each asset class reacts differently to each market cycle, you can map out your asset combination to help you sail through every market cycle.

3. Keeping investing discipline

   Once you compose an asset allocation plan that suits your financial needs, it is necessary to stay invested in a disciplined manner, so that your money gets the opportunity to benefit from each asset class. A good way to do this is through Systematic Investment Plan (SIP) which invests a specific amount every month in the pre-determined mutual fund scheme, irrespective of the market environment.

Mapping your money in different assets

Once you have determined your asset allocation ratio, it is time to map the performance of your funds and rebalance the allocation to your ratio. For instance, you decided to keep your equity, debt, and commodities allocation at 60:20:20. And the equity bull run increased the equity allocation to 80%. You can allocate some money to debt and commodity to rebalance it to 60:20:20.

While it sounds simple, asset allocation needs a lot of planning. One fund that automatically rebalances your assets across different asset classes is Aditya Birla Sun Life Multi Asset Allocation Fund. This open-ended mutual fund scheme invests across equity, debt, commodities, and REITs & InvITs at the same time, with a 65% exposure to equity.

The fund combines the growth potential of equity, the relative stability of debt and the uncertainty hedge of commodities into one fund. This professionally managed fund aims to generate long term capital appreciation while managing market volatility. It gives your portfolio the ability to ride the waves of market volatility without losing out on growth opportunities in a cost-effective manner.

Aditya Birla Sun Life Multi Asset Allocation Fund can give you a start in your asset allocation journey. You can also consider designing your own asset allocation by investing separately in different commodity ETFs, equity and debt schemes of Aditya Birla Sun Life Mutual Fund.

Aditya Birla Sun Life AMC Limited /Aditya Birla Sun Life Mutual Fund is not guaranteeing/offering/communicating any indicative yield/returns on investments.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.