Just how risky is equity? How much should you allocate to your portfolio?

Allocating assets proportionately is key towards getting the most out of your portfolio while also spreading out and diversifying risks likewise. Investing in mutual funds in India is always a good move for beating inflation in the long run while diversifying your investment basket. In this context, many people ask whether they should allocate a higher portion of their investments towards an equity mutual fund in India or other equities like stocks. Allocation of assets will naturally depend mostly on your own appetite for risks and also your financial goals down the line.

Equities are suitable when your goals are quite some time away. You can thus opt for smart systematic investment plans for investing in equity or even balanced funds which cover all bases. Along with smart SIPs, you can also consider pure equity investments via any good SIP in India. Goals that are closer are best served by debt funds which are comparatively less risky as well. Experts advise that your investment kitty should not be running after recent asset class returns. The allocation should be founded on comprehensive and long-term financial goals. For long-term objectives, equities are still the best options. Spread out any lump sum amount inequities throughout 6 to 9 months in the current scenario as per experts.

Within the umbrella of equity itself, you may deploy investments in a good equity mutual fund in India or stocks. You should create a portfolio that is balanced and diversified in multiple categories while ensuring moderate liquidity levels for meeting sudden cash requirements. You may consider 65% of the portfolio for equities in order to beat inflation and meet financial goals in the long term. This can be done via direct investments or even mutual funds. You can then consider 20% for gold and liquid funds with a view towards achieving more balance. Consider the remainder for fixed income investments or even real estate as per some experts.

A thumb rule that you may check out

Some experts highlight a basic formula behind asset allocation, i.e. your age. Your exposure to investment risks should start reducing with the onset of age. Your debt fund allocation should be equal to your age as the thumb rule goes. Hence, if you are 20 years old, your exposure to equity should be 80% while debt fund investments should be 20%. When you are 50 years old, it will be a 50-50 affair between debt and equities. For working out the suitable allocation towards equity, just subtract your age from 100. Your allocation will be shifting from equity towards debt as you grow older. When you are 40-45 years old, you may consider around 65% of your portfolio in equity-based and balanced funds. When nearing your retirement, you may start a systematic transfer plan or STP. This will shift you gradually from equity to debt or liquid funds. The risk quotient behind equity funds is considered quite high. Funds that deploy investments in small-cap or mid-cap companies usually have higher risks as compared to large-cap funds which offer more stable returns while having lower risks.

Always invest if you have a proper idea of market trends and movements. Understand your own risk appetite and work accordingly. You should actively track fund performance. High returns will only be possible over a sustained time period. You should stay invested throughout minor hiccups and market fluctuations. You should be able to remain invested for the long haul, i.e. at least 5 or 7 years. All funds have their own advantages and disadvantages that you should take into account while deploying your investment.

Always check whether a fund stays in sync with your financial objectives. High-risk equity funds will always strive for capital appreciation in the long term. Some mutual fund schemes also provide dividends. If you are seeking extra income regularly, you may consider investment options likewise. You may also invest in mutual funds with higher risks in tandem with comparatively less risky and more stable funds like debt funds or large-cap funds. This will help you maintain the right balance between the risk-return ratios within your investment portfolio while ensuring added diversification as well.

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