There are two principles of investing that we strongly advocate—diversification and asset rebalancing. It is imperative for an investor to periodically rebalance his portfolio so that he realizes his financial goals.
Though asset allocation (and its subsequent rebalancing) is one of the most important aspects of investing, it is also one of the most frequently overlooked. Asset allocation is important because it has a huge impact on whether or not you will meet your financial goals.
Of course, an investor cannot predict which asset class will do well in any specific time frame and hence, should invest in funds where he does not have to worry about how much must be allocated to various asset classes and the maintenance of that ratio. Such funds are of primarily three types: hybrid funds, monthly income plans (MIPs) and automatic asset allocators.
Here, we present the best of such funds available in the market.
DBS Chola MIP
Rating: * * * * *
The fund delivered 16% in 2007 (category average: 12.5%) and 7.52% in 2008 (category average: -1.52%). Its three- and five-year returns also put it ahead of the category average.
When the fund manager sees opportunities in equity, he tanks up on it, but doesn’t cross the mandated 20%. Overall, his equity tilt is pretty moderate. He also actively churns the portfolio with the number of stocks, going from 21 (June 2008) to 2 (October 2008).
On the debt side, the fund plays it safe by largely maintaining a lower maturity profile and sticking to high quality paper, which helps contain the downside. Currently, it has 47% of its debt portfolio in commercial paper. Since July 2008, the fund has allocated an average 18.97% to debentures.
Barring 2007, the fund has been regular with its dividends. Since December 2007, it has declared a dividend every single month (0.88%).
Birla Sun Life ’95
Rating: * * * *
Over the past 13 years, this fund has evolved into a middle-of-the-road performer that rewards investors who hang in for the long term. Its five-year returns of 23.83% (as of 30 June) bear testimony to that.
The fund aims at keeping equity allocation in the 50-75% range. This aggressive equity allocation with a focus on growth stocks gives it a risky slant. But the fund manager plays it safe by ensuring that the portfolio is not concentrated on just a few stocks. However, he does tend to adopt a contrarian stance in its sector bets.
On the debt side, the fund has a preference for G-Secs and bonds. It mostly maintains a high quality portfolio but does stretch the maturity. The actively managed debt portfolio goes for duration calls; hence, the fund manager tends to stay away from commercial paper and certificates of deposit.
Canara Robeco Balance
Rating: * * *