Many people, based on their risk profile, are exposed to a single asset class. This article will explore why asset allocation across different asset classes (such as equity, debt, and gold) is important and how balanced advantage funds and multi-asset allocation funds can give you exposure to multiple asset classes in a single mutual fund scheme. We will also understand how there is no or low correlation between different asset classes and why asset allocation is the key to generating good portfolio returns.
While designing their investment portfolio, most people include equity for wealth creation, debt for stability, and gold as a hedge against inflation. In principle, this is correct. But did you know that in a multi-asset allocation portfolio, apart from equity, gold can create wealth for you, and so can debt? As per a UTI Mutual Fund report, during 2009-2019, equity gave the best returns in only five years, debt in two years, and gold gave the best returns in four of the eleven years.
Chart: Gold, equity, and debt returns in 10 years (2009-2019)
(Source: UTI Mutual Fund)
Note: Gold returns are calculated as per gold prices in Indian markets in INR. For equity, Nifty 50 Index returns are considered. For debt, CRISIL Composite Bond Fund Index returns are considered.