Asset Allocation Funds

Financial Advisors always tell us stick to your investment plan. Keep investing regularly asyou’re your plan. The plan is usually dependent on your age and investment objective. So they will tell you put X% in Equity and Y% in Debt etc. But tell me is it possible to keep regular track and then when the market goes up or down, or when the interest rate goes up or down, rebalance your portfolio.

At the same time we do not want to employ a portfolio manager, since his cost would be high and s/he will not look at small amounts. Also SEBI has increased the minimum size of portfolio to Rs. 25 lakhs for portfolio management services. So for a small portfolio, you have to do it on your own. For such persons there is an option, take a look at asset allocation funds.

These are funds which invest in different mutual fund schemes and keep the allocation in different funds depending on the pre-determined asset allocation. The asset allocation is done by a fund manager; s/he would take care of asset allocation as well as buying and selling funds depending on how they are doing in the market.

Though it does not replace financial planning, it helps us in a way. The fund objective would always be known, so if it is close to your financial plan, then you should go for it. There are usually two types of asset allocation funds, single manage asset allocation funds and multi manager asset allocation funds. Single manager funds are those which invest in funds on the same mutual fund house, whereas multi manager funds invest across different fund houses.

Just going by the definition, it is obvious that multi manager funds should be better. The most important is the fund manager has a wider choice. He is not stuck to his own fund house, where he has to choose the best from the worst, if the schemes are not doing well. This reduces the risk of the portfolio. This is the best if you have long term objectives and do not have time.

As mentioned earlier, you chose the scheme which is close to your objective. The schemes objectives usually remain fixed, but for an individual, his/her objective keeps changing over time, so as your objective changes, move your money to a scheme which is much closer to your most recent objective.