Risk taking ability is nothing but the ability of a person to bear the loss on his investment. Remember that every investment scheme has a different risk profile and no investment is considered completely risk free. Hence it is essential for investors to understand their risk appetite before going ahead and making the actual investment. Generally, investors with absolutely zero risk appetite can consider investing in conservative investment schemes that generally offer low fixed interest rates.
However, investors who want to diversify their investment portfolio a bit aggressively can consider investing in mutual funds.
What are mutual funds?
A mutual fund is a pool of professionally managed funds where the fund manager buys and sells securities as per the investment objective of the scheme. Mutual funds are supposed to have a diversified portfolio and generally balance the overall risk by investing in a number of assets such as equity, debt, commercial paper, call money, government securities, corporate bonds, etc.
SEBI, the regulator of mutual funds in India, describes them as, ”
A mechanism for pooling resources by issuing units to investors and investing the funds in securities in accordance with the objectives stated in the offer document. Investing in securities is spread over a wide cross-section of industries and sectors and thus reduces risk. Diversification reduces risk because not all stocks can move in the same direction at the same time in the same proportion. Mutual funds issue units to investors according to the amount of money invested by them. Investors of mutual funds are known as unitholders.,
What is asset allocation in mutual funds?
Anyone looking to reduce the volatility of their investment portfolio should consider asset allocation. Asset allocation is the act of spreading your finances across various asset classes in such a way that it balances the risk of your mutual fund portfolio. Asset allocation may differ from one investor to another and several factors such as age, income, risk appetite, etc. can influence the way in which your assets are allocated. For example (and this is purely hypothetical), young aggressive investors may want to invest 60 to 75 per cent in equity mutual funds while the remaining 25 per cent to 30 per cent in debt mutual funds. On the other hand, someone nearing retirement may want to invest 50 percent in equity and 50 percent in debt. These are only examples and should not be considered as suggestions or advice.
Why is asset allocation important?
Generally we invest so that in the long run, our investments should be able to provide us some capital growth. But did you know that if you want to make the most out of your investments, you may have to be effective with asset allocation? Remember that each asset class has a different strategic approach and therefore there is a good chance that different mutual funds may generate capital appreciation in different ways. So if you are able to allocate assets effectively, you may be able to optimize your return on investment.
By now you have come to know about the fact that in which country the allocation of your assets is done.
mutual funds
Reduces the overall risk of your mutual fund portfolio. Risk balancing is important as the market is uncertain and you never know which sector may fall. So when you allocate your finances effectively, even if one sector crashes, your investments in other asset classes may be able to offset your losses.
The right way of asset allocation is equally important for anyone who has long term and short term financial goals to achieve. For example, those with long-term goals such as retirement planning may need to have a long-term investment horizon and invest in equity funds. On the other hand, individuals with short term goals like renovating their home or buying a car may need to opt for debt funds. And others with medium term goals may find investing in hybrid funds more suitable. So, depending on your investment horizon and your financial goals, you should spread your investments smartly.
By now you must have understood the importance of asset allocation in mutual funds. However, if you are finding it difficult to spread your finances as per your investment objective or if you are completely new to mutual fund investing, make sure you consult a financial advisor who can guide you in a better way. may be able to.
“This is an investor education and awareness initiative by Axis Mutual Fund. Investors need to complete a one-time KYC process. For more details visit www.axismf.com or contact us at [email protected]. Investors should only Should deal with registered mutual funds, details of which are available at www.sebi.gov.in – INTERMEDIARIES/MARKET INFRASTRUCTURE INSTITUTIONS section. For any grievance redressal, investors may call us at 1800 221 322 or write to us at customerservice@ axismf.com or register a complaint on SEBI SCORE portal.
https://scores.gov.in
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Mutual Fund investments are subject to market risks, read all scheme documents carefully.