Mutual funds give more returns than Nifty by adopting asset allocation tool

 

The first thing investors should focus on while investing in mutual funds is that their investment should be based on asset allocation formula. That is, the investment he is making should be divided into both debt and equity, as he reduces risk and gives good returns. By adopting the same method, many more mutual funds have outperformed the Nifty in terms of returns. Dynamic asset allocation fund invests in a mix of instrument tools such as stocks and FDs. However, they vary this fund allocation periodically depending on market conditions to provide you with optimal returns while maintaining minimal risk. That type of fund allocation called dynamic asset allocation.

 

An ideal mutual fund portfolio allocation requires both debt and equity exposure. In a bull market, equity exposure should be higher and debt should be lower, and recession debt exposure should be increased and equity should be reduced. Funds should always be carried by balanced asset allocation according to the market. Exposure to all large cap mid cap small cap asset allocation varies. The fund manager determines when, in which, how much, fund allocation is to be done according to the market.

 

Looking at the data, it is clear that when investing between different asset classes, it results in a positive long term. The Nifty 50 TRI has given a return of 10.2 per cent whenever the market has been in a boom or downturn in the past decade, while the Asset Allocator Fund of ICICI Prudential Mutual Fund has given a return of 11.21 per cent in the same period. One of the best allocation funds is ICICI Prudential Asset Allocator Fund (FOF).  Exposure has been only 41 per cent in equity.

 

This means that if you had invested Rs 10 lakh in Nifty in 2010, this amount would have increased to Rs 25,93,732, while in ICICI Allocator Fund it would have increased to Rs 28,39,409. That is, investors have gained about Rs 4.50 lakh more than the benchmark.

 

Not only this, even when the returns of the benchmark indices have been flat, the above fund has been able to give double-digit returns, which shows how profitable the asset allocation strategy is. It is seen that whenever the market falls, investors immediately start selling equity in fear. Historically, outside India, it has been seen many times. Whenever it comes to equity investment and strategy, investors should follow the strategy of buying at a lower price and selling at a higher price. By adopting a similar strategy, the ICICI Prudential Asset Allocator Fund offers good returns to investors.

 

According to the data, August and September in 2017 and February and September in 2018 have been the months when market valuations have been at their peak. Retail investors invested Rs 16,000–21,000 crore in the market at that time. On the other hand, when the market valuation was at a low in January and September 2013, investors pulled out Rs 17,000 crore from the market. A similar trend was seen in March 2014, when investors withdrew Rs 13,000 crore.

 

This type of habit affects the financial condition of the investors. ICICI Prudential, in contrast, follows asset allocation and follows an inhouse valuation model based on all macro and micro factors. Investors can also invest in such funds through SIP in such a case. But it also needs to be seen that this investment is for the long term.