Investors beat volatility with asset allocation funds

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Mumbai: Extreme volatility in recent months in the three asset classes most popular for ordinary people – stocks, bonds and gold – has prompted investors to use asset allocation funds. These UCIs judiciously distribute savers’ money among the three asset classes.
The funds also attempt to protect against the extreme volatility of the prices of these assets. Financial planners claim that these funds have historically given higher returns than term deposits (FDs), but at lower risk.
Consider this: In the year leading up to March 2021, the total assets managed by these funds jumped almost 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 total assets of the fund industry increased by 41.4% to Rs 31.4 lakh crore.
Financial planners say that with increasing market uncertainty, the importance of asset allocation funds has increased. “A good asset allocation strategy helps investors better manage volatility. Such a strategy usually helps investors earn more than pure fixed income assets (bonds, FDs, etc.)… it helps to significantly reduce portfolio risk, ”said Gajendra Kothari, Managing Director and CEO of Etica Wealth Management. “And by going down the mutual fund route, you could adopt the same strategy at a lower cost and in a tax-efficient manner,” Kothari said.
HDFC Mutual Fund’s lead fund manager Amit B Ganatra manages the company’s asset allocation fund of funds, whose NFO was closed on Friday. He said the program would aim to generate capital appreciation by managing the allocation of assets between equity, debt and gold ETF programs.
“The fund aims to follow a systematic and process-oriented approach to asset allocation using a financial model based on valuation parameters. The idea is to dispassionately manage an active asset allocation strategy in a disciplined manner with periodic review and rebalancing, which otherwise becomes a challenge for investors, ”said Ganatra.


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