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Understanding Asset Classes

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Various investment avenues exist to help you invest your savings and earn the highest possible returns with the lowest potential risk. These are broadly categorized as asset classes and some examples include, but are not limited to, cash and cash equivalents, bonds, derivatives, equities, real estate, gold, commodities, and alternative investments.

What are Asset Classes?

In simple words, an asset class is a collection of various securities that exhibit similar traits as well as comparable responses to market fluctuations. For instance, consider all the gadgets that you use in your everyday life such as mobile phones, landlines, televisions, radios, cameras, etc. A lot of these gadgets have similar characteristics. A camera and a mobile phone could be used to click a picture; a laptop, MP3 player, or radio could be used to play music. However, they are unique in their individual capacities as well and serve different purposes.

Asset classes operate quite similarly. Each asset class is irreplaceable and no asset class is a perfect substitute for another. Moreover, taxation, risk, liquidity, tenure, market volatility, and returns vary with each asset class.

Mutual fund experts invest in a variety of asset classes to diversify their investors’ portfolio and avoid the risk of concentration.

Types of Asset Classes

While there’s no standardised list or category of the different types of asset classes, mutual fund asset classes are widely bifurcated into the following types:

  1. Fixed-income asset class:

    One of the most popular investment options among Indians, the fixed income asset class is one of the oldest forms of investment. It includes corporate and government bonds, corporate debt securities, money market instruments, etc. Such asset class typically invest in debt securities that endeavor to pay investors interest until maturity.

  2. Equity asset class:

    Equity or stock are shares of ownership issued by companies. Equity has gained popularity over the last decade. Equity funds are further sub-categorized into small-cap funds, mid-cap funds, large-cap funds, large and mid-cap funds, multi-cap funds, dividend yield funds, thematic funds, contra funds, value funds, focused funds, sectoral funds, and Equity-linked Savings Schemes (ELSS) etc..

  3. Real estate asset class:

    This asset class focuses on apartments, plots, industrial areas, villas, commercial buildings, etc. The tangibility of real estate investments is a crucial characteristic and makes it different from securities that exist only in virtual or dematerialized forms.

  4. Cash and cash equivalents asset class:

    Cash and cash equivalents are suited for short-term investing. The primary advantage of such investments is their liquidity. Cash equivalents, such as money market instruments, commercial papers, treasury bills, etc., are highly liquid instruments with maturity upto 1 year. Thus, money invested in cash and cash equivalents is easily accessible.

Investment Strategies as per different Asset classes

Investment strategies are tied to various factors like growth, value, income, etc. Here are some of the several strategies that are used to establish asset allocation:

  1. Strategic asset allocation

    Under this, an individual investor or a fund manager invests in an equivalent combination of assets based on expected rates of returns for each asset class. The investment timeframe and risk tolerance are also taken into account. Strategic asset allocation heavily relies on diversification to limit risks and seeks to improve returns.

  2. Dynamic Asset Allocation

    This strategy regularly adjusts the combination of assets an individual has invested in as the markets rise and fall or as the economy strengthens or weakens. The fund manager or the individual sells assets that decline in value and purchases assets that increase in value periodically to maintain the overall returns on the portfolio.

  3. Integrated Asset Allocation

    This method considers factors like an individual’s economic expectations and his/her risk tolerance while establishing an asset mix. Unlike most of the strategies, integrated asset allocation strategy considers an investor’s risk appetite.

  4. Insured Asset Allocation

    This strategy requires the fund manager or the individual to establish a benchmark value, below which the portfolio’s returns aren’t allowed to drop. As long as the portfolio achieves returns above this base, the individual or the fund manager needs to exercise active management, read forecasts, conduct analytical research, and gain experience and judgement to decide which security should be bought, held, or sold to increase the returns on the portfolio and its overall value. In a situation wherein the portfolio drops below the benchmark value, investments are made into risk-free assets such as bonds, T-bills, etc., to stabilize the fund. Thus, this strategy might be suitable for risk-averse investors who yearn a certain level of active portfolio management but also appreciate the security of establishing an assured floor below which the portfolio is not permitted to decline.

An individual can pick a precise asset allocation strategy or a combination of different strategies thereon based on their needs. However, be mindful that asset allocation strategies involve reacting to market movements and call for research as well as expertise in using specific tools to gauge the market.

A basic understanding of these various types of asset classes and investment strategies helps build a balanced portfolio. A diversified portfolio comprising of different types of asset classes helps reduce the overall risk to the portfolio  as its overall performance is not affected due to a lag in any single asset class. This is because, usually, no two markets perform the same simultaneously.

The primary idea behind diversification is to match portfolio returns with your expectations and minimise overall risk and losses. While diversifying your portfolio, you should allocate the percentage of funds after primarily  considering your financial goals, risk appetite, and investment horizon.

If you’re risk-averse, you might consider investing in relatively safer investment securities. On the other hand, if you have a high-risk tolerance, you might consider investing in funds that have equity as their principal component.

Mutual funds offer you the benefit of investing in various asset classes via diversification to reduce the overall risk on your investment. Watch this video to understand asset classes better. It emphasises on why you need a combination of these asset classes to meet your financial goals.

Happy Investing!

आप बेशक अपनी बचत का इस प्रकार निवेश करना चाहेंगे कि वह ज़्यादा से ज़्यादा आमदनी कमाए और उस पर जोखिम कम से कम हो. इसके लिए आपको तरह-तरह के निवेश विकल्पों में से चुनना होगा, जहां सबमें अलग-अलग जोखिम संभावनाएं है और आमदनी दिलाने की क्षमताए हैं. इन एसेट श्रेणियों के उदाहरण हैं-कैश, ब्रॉण्ड्स, इक्विटीज़, रियल एस्टेट, सोना और दूसरी कमोडिटीज़. म्यूच्युअल फ़ंड्स आपको विभिन्न एसेट श्रेणियों में निवेश करने और निवेश का विविधिकरण करके, उसके जोखिम को घटाने का फ़ायदा देते हैं. इस वीडियो में हम आपको उन एसेट श्रेणियों की आवश्यक जानकारी देंगे और बताएंगे कि इन एसेट श्रेणियों का कॉम्बिनेशन/मिश्रित स्वरूप किस प्रकार आपके आर्थिक लक्ष्यों को पूरा करने में कैसे मदद कर सकता है.

તમારી બચત સૌથી ઓછા સંભાવિત જોખમ સાથે સર્વોચ્ચ સંભાવિત વળતર આપે એ રીતે તમારી બચતનું રોકાણ કરવા તમારે જોખમ અને વળતરની અનોખી વિશેષતાઓ ધરાવતા વિવિધ રોકાણ માધ્યમો પસંદ કરવા જરૂરી છે. આને અસ્ક્યામત વર્ગ તરીકે ઓળખવામાં આવે છે જેનાં દૃષ્ટાંત છે - કૅશ, ઈક્વિટીઝ, રીઅલ એસ્ટેટ, ગોલ્ડ અને અન્ય કમોડિટીઝ. મ્યુચ્યુઅલ ફંડ્સ તમને વિવિધ અસ્કયામત વર્ગોમાં રોકાણનો તેમ જ વૈવિધ્યતા દ્વારા તમારા રોકાણનું જોખમ ઘટાડવાનો લાભ પૂરો પાડે છે. આ વીડિયોમાં અસ્ક્યામત વર્ગો વિશે જાણવા તમને જરૂરી એ બધું જ દર્શાવવા સાથે તમારા આર્થિક હેતુઓ સાકાર કરવા તમને આ અસ્ક્યામત વર્ગોના સંયોજનની જરૂર કેવી રીતે પડે છે એ સમજાવશું.

ন্যূনতম সম্ভাব্য ঝুঁকি গ্রহণ করে আপনার সঞ্চয় যাতে সর্বাধিক ফেরত দেয় সেইভাবে বিনিয়োগ করতে, আপনার বেছে নেওয়া প্রয়োজন বিভিন্ন ধরনের বিনিয়োগ পন্থা যার প্রতিটিতে আছে ঝুঁকি আর ফেরতের কিছু কিছু অনন্য বৈশিষ্ট্য| এগুলিকে বলা হয় সম্পদ শ্রেণি, উদাহরণসরূপ নগদ, বন্ড, ইক্যুয়িটি, রিয়েল এস্টেট, সোনা এবং অন্যান্য পণ্য| মিউচুয়াল ফান্ড আপনাকে বিভিন্ন সম্পদ শ্রেণিতে বিনিয়োগের সুবিধা আর বহুমুখিতা প্রদান করে আপনার বিনিয়োগের ঝুঁকির মাত্রাকে কম করে| এই ভিডিওটিতে আমরা আপনাকে নিয়ে যাব সম্পদ শ্রেণি সমন্ধে যা আপনার জানা প্রয়োজন সেই সমস্ত বিষয়ের মধ্যে দিয়ে এবং আপনাকে জানাব যে আপনার লক্ষ্যপূরণ করার জন্য এইসব সম্পদ শ্রেণির কী ধরণের মিশ্রণ প্রয়োজন|

உங்கள் சேமிப்பை முதலீடு செய்து அதன் மூலம் மிகவும் குறைவான சாத்தியமுள்ள ரிஸ்க்கில், அதிகபட்ச சாத்தியமாகும் வருமானங்களைப் பெறுவதற்கு, நீங்கள் பலதரப்பட்ட அபாய நிலை மற்றும் வருமானங்கள் கொண்ட பல முதலீட்டு வாய்ப்புக்களில் இருந்து ஒன்றை தேர்ந்தெடுக்க வேண்டும். இவை சொத்து வகைகள் என்று அழைக்கப்படுகின்றன. இவற்றில் உட்பட்டவை - பணம், பத்திரங்கள், பங்குகள், நிலம், கட்டிடங்கள், தங்கம் மற்றும் இதர சரக்குப் பொருட்கள். மியூச்சுவல் ஃபண்ட்கள் உங்களுக்கு பல்வேறு சொத்து வகைகளில் முதலீடு செய்யும் நன்மையை அளிப்பதோடு உங்கள் முதலீடுகளை மாறுபட்ட விதத்தில் முதலீடு செய்து ரிஸ்க்கை குறைக்கின்றன. இந்த வீடியோவில் நாங்கள் சொத்து வகைகள் பற்றி நீங்கள் தெரிந்து கொள்ள வேண்டியவை அனைத்தையும் விவரிப்பதோடு, உங்கள் நிதி இலக்குகளை நீங்கள் அடைய இந்த சொத்து வகைகளின் சரியான கலவை பற்றியும் கூறுவோம்.