Many Roads to Asset Allocation

As an individual investor, it is often difficult not to get carried away by our emotions when deciding between different asset classes. Now that the stock market is up, the temptation is high to shift all one has, into equities. A year ago, investors were betting everything they had on bonds and debt funds. Asset allocation funds are passively managed funds that solve this problem by taking the emotions out of choosing between assets. They simply follow a formula-based process to determine the fund's bets on equity, debt and money market instruments. This helps the fund to automatically “buy low and sell high.” If this appears to be quite a neat solution, such asset allocation funds have delivered widely differing returns to investors in recent times. The process that a fund uses to decide on asset allocation and the leeway they have to invest in equities, makes all the difference. Today there are six asset allocation funds which follow different models to arrive at their equity and debt exposures. While Principal Smart Equity gave a return of 18.86 per cent in the past three mo