- Wealth creation is a long process
Mumbai: The success of investment depends on selecting the right stock or mutual fund scheme or investing in the market at the right time. However, investment success does not necessarily mean portfolio success or wealth creation. Most investors do not understand this difference. Bhavesh Damania, Founder, Wisdom Edge Investment, says that wealth creation is a long process, which requires discipline and patience rather than choosing a good scheme or stock and investing at the right time. Professional investors can make the right pick and timing, but not always.
Apart from professional investors, the lay investor has to rely on a structured approach to investing. That’s why the Asset Allocation Approach comes in handy for common investors. Asset allocation is a process of investing and managing your money in the best way. Each asset class is characterized by different risk and return. Which should be invested in a balanced way.
4 Main Asset Classes
Mutual fund advisor Bhavesh Damania said asset allocation is misunderstood by most investors. Having multiple assets like residential, commercial and industrial is not asset allocation but diversification. Similarly, investing in large cap, midcap or small cap is also diversification. Correct asset allocation means investing in asset classes with the right percentage of total invested capital. There are broadly 4 asset classes namely Equity, Debt, Real Estate and Commodities. Of these, capital allocation with the right percentage is important. Most of the Indians have been inclined towards insurance policies along with debt (FDs/Bonds) and real estate and investing in gold is for customary and cultural reasons.
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Equity Most Promising Category
History has proved that equities as an asset class have been the most promising category, which has given returns by beating inflation. The next asset class is gold and real estate. Only debt and insurance investors find it difficult to maintain the lifestyle in retirement life. Hence choosing the right percentage allocation ensures that all assets are benefited and wealth is created. The good thing is that common investors in India are beginning to understand the true meaning and importance of asset allocation and mutual funds have been instrumental in creating this awareness. Today mutual fund houses offer such funds i.e. schemes that invest in gold and real estate apart from debt and equity and investors are increasingly attracted to them. Many of these funds are also tax-saving. The auto rebalancing and professional management of these funds provides better returns to the investor.