Asset Allocation Made Easy with Mutual Funds

We often hear the advice that a balanced diet is good for health. It brings together all essential minerals, vitamins and proteins on a plate which are required to keep one healthy.

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A diet heavy in a single foodstuff can lead to nutritional imbalance and health issues. Just as maintaining a healthy balance in our daily diet is essential for our physical health, maintaining a balance across asset classes in our investment portfolio is essential for our financial health.

A portfolio comprising of a single asset class like equity can be subject to high volatility across market cycles. Different asset classes with low co-relation to each other can behave differently during different market cycles. For example, during periods of rising geo-political tensions in the world, equity may decline while an asset like gold may rise. By allocating investments between asset classes like equity, debt, gold, real estate, etc, one can reduce the downside risk to one's portfolio. This process of allocating investments across different asset classes to optimise returns and reduce volatility is known as asset allocation.