Asset Allocation in investment
The most important determinant of an investor’s long-term investment results is the composition of assets or asset mix in the investor’s portfolio. While factors such as security and manager selection do matter, statistically speaking, their impact keeps falling as the investment horizon gets longer, leaving asset allocation as the dominant factor driving investment results.
Thus, in any financial planning process, arriving at an appropriate asset allocation is the most critical decision variable. In the asset mix, there are likely to be assets which have higher rewards and higher risk such as equities and assets, which have lower rewards and lower risk such as government bonds. In other words, over the long-term, policyholders cannot expect equity type of returns by participating in pure debt funds (low risk-low reward) and vice versa.
An investor should balance risk tolerance to maximise future value over the investment horizon. Risk tolerance is the ability to tolerate either a more likely temporary or a less likely permanent fall in the value of the investment. Investors who cannot tolerate a fall in the value of investment from time to time (i.e. volatility in returns) should restrict their exposure to the riskier asset class of equities. Likewise, investors who have substantial working life ahead and who have limited financial liabilities in the medium-term should take exposure to a high level of equities in their overall asset allocation.
We sincerely advise our existing and prospective policyholders to reflect on their risk-bearing ability and choose an appropriate asset allocation and thereafter contribute regularly, either on a monthly/ quarterly and yearly basis, to achieve their long-term financial goals.
ICICI Prudential Life Insurance Company offers a wide suite of funds which range from equity funds to pure debt funds and also balanced funds (a blend of both debt and equity) available for policyholders with varied risk appetites and investment horizons. Please refer to the individual policy-related document for the availability of the funds as per your choice.
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*Risk tolerance is a measure of the level of risk you can take on your investment.
^Please refer to individual policy related document for the availability of the funds as per your choice.