The Process of Mutual Funds Asset Allocation
Mutual funds asset allocation refers to the adjustment that is done to the various mutual fund classes that exist so that, they can fit into the description of the investment portfolio.
This is done on a regular basis, bearing in mind that the requirements for the funds securities keep changing with the changing market conditions.
The process of asset allocation tends to be generally accepted and is not faced with a lot of criticism.
Many investors are of the view that the process brings about more merits than demerits.
In the process of mutual funds asset allocation, the two most crucial factors that are normally considered are the probable return and the probable volatility of each mutual fund asset class.
Volatility of a fund is a sensitive factor that needs to be looked into every now and then.
To be able to get the most suitable results, it is important to come up with strategies that are oriented towards risk reduction and improvement of the objectives at hand.
Some of the common pitfalls that arise and which need to be dealt with in mutual fund asset allocation process include the overlying categories, duplication and use of unsuitable funds.
For this reason, a three-step process has been recommended for use in the allocation.
It all begins by coming up with an appropriate plan that captures all the necessary aspects of a fund.
These factors include; 1)The size of the portfolio, 2)The investment period or the rime it takes for the asset to mature, 3)The risk factor per asset and 4)The return objectives.
Once the plan is in place, the next step is to come up with the most suitable strategy for its execution.
The strategy entails allocation of funds by category.
Each category should be defined by the objectives and risk tolerance levels it is subject to.
Third, the funds are given a recommendation depending on whether they are load or no-load types.
Funds that are recommendable for the no-load category are those that are above average in terms of performance, those which adhere to objectives and have below-average operating expenses.
Other factors to consider in the mutual funds asset allocation process is whether the funds are growth or income oriented.
When these factors are all combined, you will find that the risk factor generally goes down, and there is a tendency for the funds to survive a full cycle before they can be revised.
For a more comprehensive strategy in asset allocation, age factor of investors has been brought into the limelight and you will find funds being classified according to different age categories.
The age brackets will help you determine whether to invest in the long or short term, growth or income oriented classes.
This is done on a regular basis, bearing in mind that the requirements for the funds securities keep changing with the changing market conditions.
The process of asset allocation tends to be generally accepted and is not faced with a lot of criticism.
Many investors are of the view that the process brings about more merits than demerits.
In the process of mutual funds asset allocation, the two most crucial factors that are normally considered are the probable return and the probable volatility of each mutual fund asset class.
Volatility of a fund is a sensitive factor that needs to be looked into every now and then.
To be able to get the most suitable results, it is important to come up with strategies that are oriented towards risk reduction and improvement of the objectives at hand.
Some of the common pitfalls that arise and which need to be dealt with in mutual fund asset allocation process include the overlying categories, duplication and use of unsuitable funds.
For this reason, a three-step process has been recommended for use in the allocation.
It all begins by coming up with an appropriate plan that captures all the necessary aspects of a fund.
These factors include; 1)The size of the portfolio, 2)The investment period or the rime it takes for the asset to mature, 3)The risk factor per asset and 4)The return objectives.
Once the plan is in place, the next step is to come up with the most suitable strategy for its execution.
The strategy entails allocation of funds by category.
Each category should be defined by the objectives and risk tolerance levels it is subject to.
Third, the funds are given a recommendation depending on whether they are load or no-load types.
Funds that are recommendable for the no-load category are those that are above average in terms of performance, those which adhere to objectives and have below-average operating expenses.
Other factors to consider in the mutual funds asset allocation process is whether the funds are growth or income oriented.
When these factors are all combined, you will find that the risk factor generally goes down, and there is a tendency for the funds to survive a full cycle before they can be revised.
For a more comprehensive strategy in asset allocation, age factor of investors has been brought into the limelight and you will find funds being classified according to different age categories.
The age brackets will help you determine whether to invest in the long or short term, growth or income oriented classes.
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