There are 4 major assets where you can put your money i.e. Equity, Debt, Gold and Real
Estate. Mostly Real Estate and gold is taken care by Indian due to their affinity to hold
gold and Have Khud Ka Ghar. So we will mostly focus on other 2 ie. equity and Debt.
In order to decide the allocation of the funds in various asset classes , one must consider few factors as below.
Due to so many factors and that are also dynamic in nature no specific strategies are used by advisors. But they provide broad guidelines.
Below is the chart with gives the broad guideline and one can select into which catergory he/she falls into.
Investment Protection is low risk - low return strategy with less volatility
Investment Growth is medium risk - high return stategy with relatively higher volatility of assets.
|Investor Characteristic||Investment Growth||Investment Protection|
|Future Income Requirements||Steady / High||Variable / Low|
|Volatility Limit (Risk Averseness)||Low||High|
|Inflation Protection||Low Protection Needed||High Protection Needed|
|Investor take on Equity Market||Mostly Bearish||Mostly Bullish|
If a person chooses Investment growth strategy than he might be interested in Aggressive portfolio with Higher allocation to equities / risky asset. It is called Aggressive Asset allocation.
On other hand if a person chooses Investment Protection strategy than he might be looking for interest income with very little or no risk hence can have higher allocation do debt instruments or liquid funds. This is called conservative asset allocation.
If someone is in between ie needs steady income with asset growth than he will have to go for balanced asset allocation.