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What is an Asset Allocation Fund?

Asset Allocation Fund

Since the financial market is volatile, we cannot risk all our investment in a single entity like bonds, equities or money markets. This is where Asset Allocation fund comes into the picture. A single mutual fund that can be invested in a variety of securities in different asset classes is termed as Asset Allocation Funds. This fund can give us diversity in investment and also a strong tool for risk management.

Balanced fund

One basic form of Asset Allocation fund is Balanced fund. Here an investor can buy a combination of common/preferred stocks and bonds under a single mutual fund. This also provides with both income and capital appreciation with respect to avoiding excessive risks associated with investing. Usually 60% of investment is done on stocks while the other 40% is invested on bonds but other percentage fixation is also available.

Generally they can be classified into two different Asset allocation schemes.

Strategic asset allocation scheme: This is a basic mix of investment. Here an optimal balance is achieved between investing in different options.

Tactical asset allocation scheme: Here the market and economic variations are tracked periodically and the asset allocation is changed depending on the investor’s options.

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  1. Asset allocation fund is one of the ways to generate high returns. As explained about it is high risk to invest money into a single entity rather a single mutual fund can be invested in different in a different asset class. In this kind of investment a investor has a chance of buying, a combination of stock and bond as the name itself indicates the asset allocation fund.

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