Another challenge for the common investor is knowing when to enter and exit a particular asset class. Also, when it comes to rebalancing, every action here is taxed, whether short or long in duration. In fact, investing in the right asset class as needed and then rebalancing it is no easy task. This is where the ICICI Prudential Asset Allocation Fund (FOF) comes in. The data shows that the program’s strategic allocation between asset classes (equities, debt and gold) helped ensure a smooth long-term investment experience.
Structure of the fund of funds
If an investor would have invested Rs 10 lakh in lump sum in March 2010, it would be equal to Rs 41.41 lakh today. During the same period, the same investment in Nifty 50 would be Rs 39.03 lakh. The plan’s average equity during this period was only 43 percent. This shows that despite the low equity allocation, the fund managed to outperform the Nifty index over the long term. The scheme has a fund-of-funds structure and primarily allocates between equity and debt mutual fund schemes based on ICICI Prudential’s internal valuation model. There is also a gold allocation in this scheme. One of the strengths of this fund is that, depending on the valuation model, the allocation to both equities and debt can vary from 0 to 100%. This model continues to increase equity exposure based on the principle of buying low and selling high when the market declines.
How to Perform Well in Difficult Situations
The plan’s equity allocation stood at 83% when markets rallied strongly in March 2020 at the start of the pandemic. Subsequently, as markets improved, the equity allocation was reduced to 45% in December 2020. Today, in May 2022, the equity allocation is 33%. At the same time, the data also shows that the program performed well even in the toughest market conditions. From late January 2015 to early April 2017, the Sensex hovered around 30,000. While the market was flat, the program returned 10.8%. Notably, the program was successful in limiting downside risk in a declining market. Since the peak in October 2021, since Nifty and Sensex 30 are down about 15%, the diet has improved by just 1.1%.
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