October 25, 2019 was a unique Diwali for the people of Tandor Village located in the Mangalvedha Taluk of Solapur district in Maharashtra. The village of less than 2000 people had amongst them the national topper of the Indian Engineering Services (IES) exam conducted by the Union Public Service Commission (UPSC) - Harshal Dnyaneshwar Bhosale. It is a tough and competitive exam conducted at 3 levels – Preliminary, Mains (both written) and Interview.

Born in a family which could hardly make two ends meet, Harshal was brought up by his mother Kamal as he lost his father when he was just 5 years old. Unlike normal children enjoying the comforts of cosy homes, Harshal’s childhood was tough as his mother had to toil in the fields to bring up her 6 children (5 daughters and one son).

After initial schooling in a local school, he went to the Ashram school in Solapur before completing his engineering diploma in Beed and then his engineering degree in Karad (all in Maharashtra). It was a super achievement for Harshal to land a job after his engineering in the Bhabha Atomic Research Centre (BARC) in Mumbai where he worked briefly before moving on to ONGC in Pune from where he appeared for the UPSC IES exams in 2018. While he had worked hard for the exams, he had never thought he would top the country. While Harshal is now eligible for job in a central government, we must admire the fact that despite his economic condition, he had the resilience to #ReachForBetter.

Unlike Harshal, many of us crumble even in the face of smaller hardships, both in life and our investments. In the case of mutual funds, investors discontinue SIPs when equity markets fall. The real challenge is to follow investment discipline and do exactly the opposite –buy when markets are cheap (bear phase) and sell when markets are expensive (bull phase).

How about a Plan B for investors who fear equity markets volatility? Such investors can invest in a dynamic asset allocation portfolio which seeks to cushions the downside risk of equities by investing a portion of the money in debt securities. The combined portfolio generally provides relatively stable returns vis-à-vis a pure equity portfolio.

How does it work? Dynamic Asset Allocation Funds (DAAF) offer a bundled portfolio of typically equity and debt. They work on formulas or algorithms which decide on the proportion of equity and debt using various market valuation indicators. This helps investors to stay invested during volatile market phases as the debt component seeks to cushion the downside risk. Hence DAAF are relatively less volatile than pure equity funds while returns too are proportionately lower. For those investors who lack the endurance like Harshal, a dynamic asset allocation portfolio is the way to #ReachForBetter!

Disclaimer: The views expressed here in this article are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the recipient. Information contained in this article is not a complete representation of every material fact and is for informational purposes only. The recipient is advised to consult its advisor/ tax consultant prior to arriving at any investment decision.