presentation on asset allocation

1. PRESENTATION ON ASSET ALLOCATION FOR
INVESTOR OF 27 YEARS FOR 5 YEARS TIME
HORIZON
Presented by
Jyotsana Shukla

2. Contents
• What is an asset allocation?
• Factors to consider while asset allocation
• What are An Equities funds?
• Thumb Rule
• Deciding between Debt vs. Equity
• What are Bonds?
• Most common type of Bonds offers are
• Alternate asset offered are
• Asset allocation 5 & 10 years
• Case Study
• Conclusions

3. What is an Asset allocation?
Asset allocation is the process of deciding how to divide your investment dollars across several asset categories.
Stocks, bonds, and cash or cash alternatives are the most common components of an asset allocation strategy.
However, others may be available and appropriate as well. The process involves dividing your investment dollars
among asset categories that do not all respond to the same market forces in the same way at the same time.
Though there are no guarantees, ideally, if your investments in one category are performing poorly, you will have
assets in another category that are performing well. Any gains in the latter may offset the losses in the former,
minimizing the overall effect on your portfolio. Remember that all investing involves risk, including the possible
loss of principal, and there can be no guarantee that any investing strategy will be successful.

4. Factors to consider while asset allocation
• Investment objective ( Eg. Retirement planning)
• Time horizon for the goal (short term or long term )
• Net worth
• Amount to be invested
• Risk tolerance and experience
• Short turnaround time
• Optimum returns for less investment
• Lesser investment amount
• High liquidity

5. Process
• It is based on the premise that the
different asset classes have varying cycles
of performance, and that by investing in
multiple classes, the overall investment
returns will be more stable and less
susceptible to adverse movements in any
one class.
• All investments involve some sort of risk,
whether it’s market risk, interest risk,
inflation risk liquidity risk, tax risk. An
individualized asset allocation strategy
seeks to mitigate the risks of any one asset
class though diversification and balance.
Set your
financial
planning
objectives
Set strategic
allocation
Add asset to
build up
portfolio
Monitor asset
allocation
regularly
Rebalance your
portfolio

6. What are An Equities funds?
• When an investor invests in an Equity Mutual Fund, the price that they pay for each unit of the fund is the
Net Asset Value (NAV).
• Net Asset Value is the book value of the fund. Book Value is the difference between what the mutual fund
owns (assets) and what the mutual fund owes (liabilities). The assets are shares that the fund bought.
Liabilities are made up of expenses that are incurred for running the mutual fund.
• The NAV is directly impacted by the price fluctuations in the stock market.
• The investment activities of a mutual fund, equity or otherwise, are professionally managed by fund
managers. These fund managers are capable as well as qualified individuals who are selected after a
thorough review.

7. Thumb rule
• This is the thumb rule used for asset allocation. Subtract your age from 100 to find how much of your
portfolio should be allocated to equities
Age 30
Equity : 70%
Debt : 30%
Age 60
Equity : 40%
Debt : 60%

8. Exception to thumb rule
If we talk about traditional asset allocation it is having some exceptions
1. If the average Life expectancy is increasing.
2. Risk taking capacity of the investor.
3. Investable surplus of the investor .
4. Experience of investor .
5. Performance of funds.

9. Deciding between Debt vs. Equity
• Investment objectives - The objective could be to income generation or wealth creation. Debt is advisable
for those looking to generate income through their investments because it provides more certainty of return.
However for growth and wealth creation, equities would be a better option depending on the investment
duration and return expectation.
• Investment duration - Investors should select the asset class based on the time period at the end of which
they will need the money, for example, 20 years. Debt funds are better for shorter durations, preferably 5
years or less. Equity funds should ideally be held for duration longer than 5 years.
• Returns expected - A number of investors choose an asset class (Debt or Equity) with unrealistic
expectations. Returns from each come with varying degrees of risk and uncertainty. On a long-term average
basis, returns for debt are in the region of 9% and equity in the region of 16%.
• Tax applicable – Equity investments are highly tax efficient with zero tax for holdings longer than 1 year.
Debt funds, on the other hand, attract short-term capital gains tax before 3 years and long term capital gains
with indexation after 3 years.

10. What are bonds?
A bond is debt instrument that a government or a company issues to raise money. Basically it is a contract between a
government or a company—who is acting as the borrower—and investors like you—who are acting as the lender.
When you buy a bond, you are lending money to the government or company that issued the bond, and in return, the
government or company that issued the bond is agreeing to pay your money back, with interest, at some point in the
future.
Think of it this way. When you buy a house, a bank creates a contract—a mortgage in this case—wherein the bank
lends you money and you agree to pay the bank back, with interest, at some point in the future. Well, with a bond, you
are like the bank, the government or company is like the home buyer and the bond is like the mortgage contract.

11. Most common type of Bonds offers are:-
• Tax saving Bonds
• Gold deposit bond
• Capital Gains Bonds
• Government Of India Savings (Taxable) Bonds
• National saving scheme(NSC)
How bonds work?
BONDS ISSUED (
GOVT/
CORPORATION)
FOR A SPECIFIED
PERIOD
INTEREST RATE
APPLIED
RETURNED AT
MATURITY DATE (
depend)

12. Alternate asset offered are:-
• Fixed deposit:- is a financial
instrument provided by banks which provides
investors with a higher rate of interest than a
regular savings account, until the given
maturity date.
• POMIS:- POMIS stand for Post Office
Monthly Income Scheme .This scheme is
provided by the Indian Postal Service and is
administered by the Finance Ministry of India.
• LIC Policy- e.g. - New JeevanMangal Plan: A
micro-insurance term insurance plan that
offers returns of premiums on maturity of
policy and also covers the insured person for
accident benefit.

13. Asset allocation 5 years
Goals for asset allocation for 5 years
1.Need to pay for education of his
daughter
2.Planing to buy a new car
3. Emergency funds

14. Asset allocation 10 years
Goals
1. Son’s marriage,
2. Pay off house loan,
3. Purchase a car,
4. Planning a trip to London on their silver jubilee,
5. Emergency liquidity.

15. Case study
• Mr. Shantanu living New Delhi is an High Net worth Individual businessmen. He is having good
financial knowledge.
• His family comprises of his Wife (42 years), Daughter (15 years) and Son (20 years).
• He lives a lavish lifestyle and travels a lot.
• Earlier his asset allocation was different according to his risk taking capacity.
• In his liabilities
• He is having a home loan
• Will need money for her daughter’s education and son’s marriage

16. Conclusion
As Mr. Swastik is a High net worth individual so he is having enough surplus to invest
He is also having experience of market thus he can utilize it.
He is a money making man so increasing part of debt more than 40 percent will not be worth full for him
For his ongoing loan he is paying 8.50%, On a long-term average basis, returns for debt are in the region of
9% and equity in the region of 16% so it will be beneficial for him to keep investing as he is having a positive
real rate of return
So Research recommendation for equity over time frame of 5 years and beyond.