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    Asset allocation: Your Dolo to financial health

    Synopsis

    While uncertainty is inevitable, one’s response to uncertainty can be planned well in advance. You can strengthen your portfolio with Quantum’s DIY 12-20-80 Asset Allocation Strategy, which has the potential to minimize downside risks and achieve your long-term goals.

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    Through this interview, Rina Nathani, the Chief Business Officer of Quantum Mutual Fund, shares how one can build their financial health using 12-20-80 asset allocation strategy and help achieve their goals.

    What is asset allocation and why do you need it?
    The start of the calendar year is a good time to assess your financial health and review how your investments have fared. Amidst uncertainties in the market, it is difficult to predict the next winning asset class. Different asset classes respond differently to macroeconomic developments and tend to move in cycles. Hence, one needs to spread their money across asset classes. This is asset allocation. Against the backdrop of rising Omicron cases, we saw the internet lit with memes of how Dolo saw increasing popularity as an all-round self-help remedy to help you get through aches and chills. Similarly, a disciplined asset allocation using three diversified assets of equity, debt and gold can act like a one-stop DIY(Do-it-yourself) solution to strengthen your financial health.

    What role do these assets play in your portfolio?
    Time and again, crisis teaches us a lesson to have a broad asset allocation. Be it the 2008 Financial Crisis when equities fell by more than 50% or in 2020, equities fell by 30-40% in just one month. You need to ask yourself whether you are ready to accept that kind of drawdown in your portfolio? If not, you need two other asset classes to balance out. Debt is there for stability in your portfolio and gold is the best available diversification tool for your portfolio.

    How does one balance their portfolio? Is there a formula?
    While uncertainty is inevitable, one’s response to uncertainty can be planned well in advance. You can strengthen your portfolio with Quantum’s DIY 12-20-80 Asset Allocation Strategy, which has the potential to minimize downside risks and achieve your long-term goals. We have seen this work across time horizons, across cycles, across crises - be it a global financial crisis or the Covid crisis. And therefore, it gives us the conviction to advocate that this could be the formula that can help investors meet their financial goals.

    At Quantum, we have meticulously been adding funds over the years across the asset classes of Equity, Debt and Gold to create a one-stop-shop for investors’ needs and objectives. Each fund that we have launched forms a building block in our well-thought-out and time-tested 12-20-80 Asset Allocation strategy.

    How does this 12-20-80 asset allocation strategy work?
    To start with, before you can begin investing in any asset class, you should keep a financial backup or “Emergency Money” ready to see you through 12 months of expenses. Ideally, park this money in a safe place like a bank account or a Liquid Fund scheme such as the Quantum Liquid Fund that offers you the option to liquidate (up to Rs.50K) whenever you need it. Since this fund takes minimal credit risk and has a portfolio of AAA/A1+ rated PSU bonds and quality government securities with a duration not exceeding 91 days, it has relatively low interest rate risk (classified as A-1 as per the PRC matrix). This qualifies as a Safety or the Foundation block of your portfolio.

    After setting aside 12 months of safe money, whatever money is left could be split between 80% to Equities and 20% to Gold. When you look at investing 20% in gold, you should ideally choose efficient forms like the gold fund of funds or gold ETFs. This helps negate any worry about its purity, price, or storage hassles as against physical gold which has pricing markups and locker charges.

    Quantum Gold Fund ETF is backed by pure Gold of 99.5% finesse. As a step ahead, the fund also undertakes regular independent purity tests of all gold bars. Generally, gold has an inverse relationship with equities and performs better when equity mutual fund performance is under stress and forms an ideal portfolio diversifier. Thus, Gold forms your Risk Diversifying Block.

    Finally, a majority portion goes to the Growth block where one invests 80% to an equity bucket that is diversified across styles of equity management, market cap segments and strategies.

    When valuations appear elevated and there is uncertainty in the market, you can reduce downside risk with a portfolio that is at a discount to its intrinsic value based on the historical average. Such a fund is our flagship fund Quantum Long Term Equity Value Fund that has a proven track record of 15 years. 15% of your equity portfolio can be in the Quantum Long term Equity value fund that is based on the belief of India’s long term growth potential

    Then consider allocating another 15% to the emerging ESG mutual fund that incorporates the three non-financial parameters of the environment, social and governance which have a material impact on the future of earnings potential and valuation, making them important considerations for investors. Invest in Quantum India ESG Equity Fund, one of the earliest funds in the ESG space that has showcased resilience even during Covid-induced economic deceleration. The fund uses its own proprietary ESG scoring methodology developed through years of research in the ESG space.

    Finally, a greater chunk of your portfolio (approximately 70%) can be invested in Quantum Equity Fund of Funds that simplifies your equity mutual fund selection needs by investing in 5-10 well-researched diversified funds of third-party equity mutual funds.
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    Download Guide to know more.

    **Please note the above is a suggested fund allocation only and not as an investment advice / recommendation.

    How does this strategy help lower downside risk? Can you illustrate with an example?
    To see how this asset allocation strategy works. Consider an investor with a wealth creation goal who has invested using the 12-20-80 asset allocation strategy. The table shows Rs 1 lakh investment growth in value using the equity-gold portion of the portfolio from December 31, 2019, to December 31, 2021.
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    Disclaimer: Past performance may or may not be sustained in the future. The market value of the portfolio as of 31st December 2021. The performance of the fund to be read in conjunction with the complete performance of the funds as given below.

    Evaluating drawdown of Rs 1 lakh investment in the equity-gold portion of the portfolio compared to S & P BSE Sensex TRI from the pre-COVID peak (17th January 2020) to the COVID market crash bottom (23rd March 2020). You can see that the asset allocation strategy limited the downside risk and provided stability in a highly volatile market.
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    Notes: 1. Market value of the portfolio as on Mar 23, 2020. Past performance may or may not be sustained in the future.

    Thus, by using the building blocks with underlying assets in Equity, Debt and Gold, you can be on your way to negate any worry concerning market uncertainty and achieve your long-term financial goals.

    What about investing in NFOs or popular asset classes like cryptocurrency?
    Investors need to exercise caution when investing in NFOs as these do not have a proven track record yet. Similarly, cryptocurrency is a highly volatile asset class and therefore limit allocation to not more than 5% of your portfolio as play money to invest in asset classes and NFOs you think are likely to have potential. Finally, regularly revaluate your portfolio to see if it needs rebalancing.

    How best to go about asset allocation? Is there an online tool?
    To make the Asset Allocation Approach easy and simple for everyone to adopt, we have launched our new and improved Investment Dashboard. In just a few clicks, it allows investors to balance their portfolio to meet their wealth creation goals – without having to stress about timing markets and unforeseen circumstances. For more details, they can visit our website www.quantumamc.com
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    #S&P BSE 500 TRI, ##S&P BSE 200 TRI, ###S&P BSE Sensex.
    Data as of Dec 31, 2021
    Past performance may or may not be sustained in future.
    Load is not taken into consideration in scheme returns calculation.
    Different Plans shall have a different expense structure.
    Returns are net of total expenses and are calculated on the basis of Compounded Annualized Growth Rate (CAGR).

    #with effect from December 01, 2021 Tier 1 benchmark has been updated as S&P BSE 500 TRI. As TRI data is not available since inception of the scheme, benchmark performance is calculated using composite CAGR S&P BSE 500 index PRI Value from March 13, 2006 to July 31, 2006 and TRI Value since August 1, 2006.

    ##TRI data is not available since inception of the scheme, Tier 2 benchmark performance is calculated using composite CAGR S&P BSE 200 index PRI Value from March 13, 2006 to July 31, 2006 and TRI Value since August 1, 2006
    The Fund is managed by Mr. Sorbh Gupta and Mr. Nilesh Shetty. Mr. Sorbh Gupta has been managing the fund since Dec 01, 2016. Mr. Nilesh Shetty has been managing the fund since Mar 28, 2011.
    Click here to view other funds managed by Mr. Sorbh Gupta. Click here to view other funds managed by Mr. Nilesh Shetty.
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    #S&P BSE 200 TRI, ##S&P BSE Sensex TRI.
    Data as on December 31, 2021.
    Past performance may or may not be sustained in the future. Load is not taken into consideration in scheme returns calculation. Different Plans shall have a different expense structure. Returns are net of total expenses and are calculated on the basis of Compounded Annualized Growth Rate (CAGR). Mr. Chirag Mehta manages 5 Schemes of Quantum Mutual Fund. For other schemes managed by Chirag Mehta, please Click here.
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    #NIFTY100 ESG TRI, ##S&P BSE Sensex TRI.
    Data as on December 31, 2021.
    Past performance may or may not be sustained in the future. Different Plans shall have a different expense structure. Returns are net of total expenses and are calculated on the basis of Compounded Annualized Growth Rate (CAGR). Mr. Chirag Mehta manages 5 Schemes and Ms. Sneha Joshi manages 1 scheme of the Quantum Mutual Fund. For performance of other funds managed by Chirag Mehta, please click here.
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    #Domestic Price of Gold, ##CRISIL 10 Year Gilt Index.
    Data as on December 31, 2021.
    Past performance may or may not be sustained in the future.Returns are net of total expenses and are calculated on the basis of Compounded Annualized Growth Rate (CAGR). Different Plans shall have different expense structure. Mr. Chirag Mehta manages 5 Schemes and Ms. Ghazal Jain manages 2 Schemes of the Quantum Mutual Fund. For other schemes managed by Mr. Chirag Mehta, please Click here. For other schemes managed by Ms. Ghazal Jain, please click here.
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    Disclaimer: The views expressed here in this Article / Video 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 reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The Article / Video has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate, and views given are fair and reasonable as on date. Readers of the Article / Video should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments. None of the Quantum Advisors, Quantum AMC, Quantum Trustee or Quantum Mutual Fund, their Affiliates or Representative shall be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary losses or damages including lost profits arising in any way on account of any action taken basis the data / information / views provided in the Article / video.

    Mutual fund investments are subject to market risks read all scheme related documents carefully.
    ( Originally published on Jan 31, 2022 )
    (This article is generated and published by ET Spotlight team. You can get in touch with them on etspotlight@timesinternet.in)
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