Schedule a call Click here
Give missed call to buy +91-9980970424
Contact Us
For NRI Customers
(To Buy a Policy)
(If you're our existing customer)
For Online Policy Purchase
(New and Ongoing Applications)
Branch Locator
For Existing Customers
(Issued Policy)
Fund Performance Check
Login
Customers
Employees
Partner
What Is Asset Allocation in Investment?
In ULIP policy, the investment risks in the investment portfolio is borne by the policyholder.
An asset refers to anything you own that can generate a positive economic impact and get converted into money. Say you purchase a home for INR 1 crore. After ten years, you sell the property for INR 4 crore. You can classify the house as an asset since it had a positive economic impact, a profit of INR 3 crore, and the value was converted into money. When you invest, you purchase assets that you can later convert into money to gain returns. Let’s learn more about assets and how to choose them.
What Is Asset Allocation?
A type of investment strategy, asset allocation refers to the process individuals and portfolio managers use to minimise risk by selecting diverse assets. Investors can choose the percentage of the investment amount that they want to put into various assets. Ideally, they should choose assets across multiple sectors to reduce their exposure to risk.
How to Weigh Assets
While selecting assets, you must understand how each one aligns with your financial goals. Certain assets, such as equities, could offer higher returns in the short-term, depending on market conditions. Debt funds, on the other hand, offer lower returns but less risk. The asset allocation process should be highly personalised based on your goals and risk appetite. Let’s look at how different kinds of investors may weigh assets while investing:
Conservative or Risk-Averse Investors
Assume you are investing for your retirement. You do not have a financial safety net to fall back on, so you want to minimise your exposure to risk. You can choose investment vehicles that invest in low-risk market instruments like government bonds and debt funds. Most guaranteed income plans in the market invest only 5% in potentially high-risk tools like equity funds and the balance 95% in low-risk debt funds.
Wealth Creation or Very Aggressive Investors
Younger investors who want to build long-term wealth can often afford more risks than others. They have minimal financial obligations and want to focus on creating a significant nest egg for the future. Very aggressive investors can increase their exposure to high-risk investments like equities. Over time, they can change their asset allocation to make it more conservative. These investors can start with equity exposure up to 60% and slowly reduce it down to 10% or 5%.
The above examples provide two extremes of how you can work out your asset allocation. Most investors use moderately conservative, moderate or aggressive approaches to their investments. Let’s look at how these investors allocate their assets:
| Conservative | Up to 5% | Between 95-100% |
| Moderately Conservative | Between 5-20% | Between 80-95% |
| Moderate | Between 25-30% | Between 70-75% |
| Aggressive | Between 30-40% | Between 60-70% |
| Very Aggressive | Between 40-50% | Between 50-60% |
Investments Allowing Flexible Asset Allocation
As an investor, you should always decide on the allocation that makes you feel comfortable. However, you may not always have the expertise to select the ideal allocation or make changes as required over time. Instead, you can opt for an investment that allows you to decide on the allocation and make necessary changes. Let’s look at some examples of such investments:
National Pension Scheme (NPS)
Several Indians invest in the NPS to help them create a corpus for retirement. Investors can choose to open only a Tier I account for retirement. Those who have a Tier I account may choose to get a Tier II account for non-pension investments as well, but there are limits on the amounts.
Irrespective of the type of NPS account you have, you have the liberty to choose the assets in your portfolio. The NPS puts a cap on your exposure to equity funds, but you can choose the allocation for corporate debt, alternative assets and debt funds. You can opt for the auto allocation option, which automatically chooses allocations based on your age. Alternatively, you can opt for the active choice and pick your allocation based on personal financial goals.
Unit-Linked Insurance Plans (ULIPs)
ULIPs provide investors with life cover while helping them build a corpus for the future. When you purchase a ULIP, a portion of your investment amount gets used as a life insurance premium. The rest goes into debt and equity funds based on your risk appetite. Some investors choose to invest only in debt or equity funds, while most choose hybrid fund options that invest in both. You can set your asset allocation when you start investing. Over the course of your investment, you have the ability to make changes to your allocation. When the market performs well, you can redirect more of your investment to equity funds. Conversely, if there’s a downturn, you can put more money into debt funds.
Many young individuals worry about making the wrong kind of investment. By understanding your risk appetite and financial goals, you can pick an asset allocation that works best for you. You can always ask for help or purchase plans like ULIPs where a professional manages the money on your behalf.
Related Articles
- Income Tax Slab 2021-22
- Income Tax Return Guide - Details You Should Know
- Best Tax Saving Investment Options in 2022 (FY 2022-2023)
ARN: ED/08/22/28709
Term Plan Articles
Investment Articles
Tax Articles
Retirement Articles
ULIP Articles
Subscribe to get the latest articles directly in your inbox
Health Plans Articles
Child Plans Articles
Popular Calculators
Francis Rodrigues
Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.
Written By:
HDFC Life
Reviewed by Life Insurance Experts
HDFC LIFE IS A TRUSTED LIFE INSURANCE PARTNER
We at HDFC Life are committed to offer innovative products and services that enable individuals live a ‘Life of Pride’. For over two decades we have been providing life insurance solutions - protection, pension, savings, investment, annuity and health.
The Unit Linked Insurance products do not offer any liquidity during the first five years of the contract. The policyholders will not be able to surrender or withdraw the monies invested in Unit Linked Insurance Products completely or partially till the end of fifth year.
Unit Linked Insurance products are different from the traditional insurance products and are subject to the risk factors. The premium paid in Unit Linked Life Insurance policies are subject to investment risks associated with capital markets and the NAVs of the units may go up or down based on the performance of fund and factors influencing the capital market and the insured is responsible for his/her decisions. HDFC Life Insurance Company Limited is only the name of the Insurance Company, HDFC Life is only the name of the brand. The name of the company, name of the brand and name of the contract does not in any way indicate the quality of the contract, its future prospects or returns. Please know the associated risks and the applicable charges, from your insurance agent or the intermediary or policy document of the insurer. The various funds offered under this contract are the names of the funds and do not in any way indicate the quality of these plans, their future prospects and returns.
Popular Searches
- Best Investment Plans
- What is Term Insurance
- 1 Crore Term Insurance
- Short term saving plan
- Saving plans
- ULIP Plan
- Health Plans
- Child Insurance Plans
- Group Insurance Plans
- Long Term Savings Plan
- Fixed Maturity Plan
- Monthly Income Advantage Plan
- Pension Calculator
- BMI Calculator
- Compound Interest Calculator
- Term insurance Calculator
- Tax Savings Investment Options
- 2 crore term insurance
- 50 lakhs term insurance
- annuity plans
- Investment Calculator
- get pension of 30000 per month
- ULIP Returns in 5 Years
- investment plan for 5 years
- investment plan for 10 years
- 50-Lakh Investment Plan
- guaranteed returns plans
- sanchay plans
- Pension plans
