The Hindu Business Line : Fund houses should educate investors on asset allocation

Is your asset allocation far too obviously imperfect, overly defensive and needlessly supportive of fixed-income funds when equities are surging ahead? Or, is it too concentrated on sector funds when there are compelling reasons for dumping some of them in favour of diversified products?

You may not have ready answers to these questions, but these are posers that you need to ask yourself all the same. Getting your asset allocation right is critical, more so when key elements in your life - working and personal lives, if one may stretch the point - are likely to change in the days ahead.

Given that each investor has a unique risk profile and very distinctive needs, no two entities can have the same asset allocation. However, a lot of people do not bother much about getting it right. Instead, they blindly follow what their advisors and distributors tell them to do.

So, Mr A, despite his youth and the many investing years ahead of him, may put in as much as 80 per cent of his money in debt funds, leaving only a measly part of his kitty for equities. And Ms B may be quite unnecessarily keeping her surplus cash in liquid funds for months on end.

Investors often do not realise that over-exposure to certain categories of funds may be ruining their chances of getting better returns over a period of time - all of it done at the pretext of running lower risks. As seasoned investors will no doubt agree, such logic does not hold true always.

Yet, for all that is said and done, asset allocation is not easy to master. Can asset management companies create awareness on this front? Surely they can make an effort, particularly when some of them are earmarking enormous time and energy on product promotions and the like. The point is, the sooner they start, the better it is for everybody.

Fund houses and their clients need to realise that the markets in India are breaking records every day. Equities are on a high and dynamics on the fixed-income side are changing like never before. It is time for all of us to grab the opportunity. Let us at this juncture go back to the beginning of 2007, especially to what our fund houses said about the markets. Some clearly expected the economy to grow at about 8-8.5 per cent, mostly because of industry and services. The market then traded at over 17 times price/earnings of fiscal 2008.

Fair value

Valuations - many felt that India was in the `fair value' territory - were not thought to be fully stretched, not if earnings growth was considered.

On the debt side, interest rates were expected to move in a narrow range. Tightening liquidity, higher inflation and robust economic data were the main issues of the day. Fund houses mostly advised investors to remain with shorter-term products.

Today, as we step into June, not a lot has changed. But whether you are a true-blue equity investor or a great supporter of debt, you will still have to get your asset allocation right. It is really that simple.

Feedback may be sent to nilanjan@thehindu.co.in

More Stories on : Mutual Funds | Mutual Confidence

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Soft skills gap wide in financial services

Fund houses should educate investors on asset allocation

Tread not into unknown terrain

`There are a few stray areas representing considerable value'

Some more headroom likely for bulls