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What should be the asset allocation in the current situation?

Asset allocation should be done based on your experience in equity investing and the phase of your life instead of the market situation, suggests Dhirendra Kumar

What should be the asset allocation mix in the current situation as we are facing the Covid-led crisis? Also, I have invested in the regular plan of a mutual fund scheme and now I am finding the expense ratio too high. Kindly suggest how I should move to a direct plan.
- Sandeep Shrivastava

Most investors should choose one of the four asset allocation plans. One is that if you're getting started, don't do asset allocation because you have nothing to lose when you are just getting started. So, if you are going to invest one and a half lakh rupees and that, too, in a tax-saving fund, don't do anything more, just have 100 per cent in equity.

You need to do asset allocation only when you have built something meaningful. I would say that we should have a broad kind of framework in our mind that a third of your money should be in fixed income once you are still in your earning and accumulation phase so that if the market happens to encounter the March kind of situation again, you will have some shock absorber built in your portfolio.

Once you are getting closer to your retirement or post-retirement, then 50 per cent of your portfolio may be in equity and 50 per cent in fixed income, which is good enough. This is because then you will get a rebalancing opportunity once or twice in a year. If you're a very conservative investor who started investing late and are not experienced, the entire equity experience is very unnerving and maybe a third of your money should be in equity and the remaining two-thirds in fixed income.

You should keep rebalancing periodically or as and when your asset allocation goes out of whack. This should be your guidance for rebalancing rather than the state of the market, as the markets will misbehave many times and if you reset your allocation, that itself will do the job.

Now to answer whether you should move from a regular plan to the direct plan, ideally you should if you don't need an advisor's help. But if you have got hold of a good advisor who does your hand-holding and who actually turns out to be a good counsel in bad or anxious times, then carry on with the higher expense for the advice.

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