Mutual Fund Unlocked: Asset allocation strategies (Part 2)

The proper asset allocation with a proper strategy always garner better returns. In volatile times, investors usually look for the best-suited investment option or investment strategy. In the previous article, we have seen two investment strategy that is Coffee Can strategy and the fixed per cent strategy.

There are various strategies for allocating capital to different kinds of mutual funds. Let’s see some types of asset allocation strategies

100 minus age strategy

This is one of the safest asset allocation strategy. Here investors are expected to subtract their age from 100 to determine the asset allocation. The result from 100 minus age is considered to be invested into the equity mutual funds and the remaining into the debt funds.

For instance, if one’s age is 35, then 100 minus age strategy suggests 65 per cent of investments in equity funds and the rest (35 per cent) should be in debt funds. This rule is extremely widespread among the investors as this strategy reduces the exposure to the equities as per investor's age.

Market dependant strategy

This strategy count on market conditions to decide the allocation towards different types of mutual funds. This strategy believes in constantly readjusting investment allocation with respect to the market conditions. That is when equity markets are witnessing a rally, investors are expected to increase investments in equity funds. And on the contrary, when equity markets are on a losing streak, investors should play safe by increasing the investments in debt funds.

The market dependant strategy does not suit every investors it requires a great deal of work. One cannot just invest and hold the investment here, investors need to keep on eye on markets and need to buy and sell as per the movements constantly.