Goal of each investor is to create a wealth-generating portfolio. To achieve this, the investor invests in a range of different assets. Given the uncertainties in the markets, putting too many eggs into one basket or one asset class is risky.

To offset such risk, it is necessary to create a portfolio depending upon the risk appetite, time horizon and state of market. A portfolio depending upon the risk appetite will manage the risk and will meet the optimum return requirements.

The best way to ensure the portfolio is balanced and growth is optimized is to evaluate the risk appetite based on market conditions and life goals. If there is an immediate requirement for cash, funds can be allocated to stable debt mutual funds that provide liquidity and stable returns.

When there is a medium to long-term investment horizon, the asset allocation can bend towards equities that provide proven returns over a longer term.

By yearly evaluations of the portfolio and investment goals, investments can be reallocated to ensure the portfolio and the growth is in alignment with the investor’s objectives. This way, the risk on the portfolio remains within acceptable limits, and the investor earns consistent returns over a period.

The main goal of allocating your assets is to minimize risk while meeting an expected level of return. Of course to maximize return and minimize risk, you need to know the risk-return characteristics of the various asset classes. Figure 1 compares the risk and potential return of some popular choices:

The asset allocation will depend upon the following factor

a)          PE Ratio, Dividend Yield and PB Ratio of various Nifty indices.

b)          Time Period of Investment

c)          Risk Appetite of Investor

SUGGESTED EQUITY FUNDS FOR MODERATE INVESTOR

This type of investor is looking for balance growth by investing in equity Mutual funds with less fluctuation in returns in invested capital.

The equity component of such portfolios is majorly invested in stable blue-chip companies that have potential to grow with stable pace of growth through their well-established business model. A small portion is invested in high-risk mid cap & small Cap funds to boost returns.

The main of investing equity is to generate reasonably good return from equity investments. The returns on these portfolios can swing with the market momentum. The following equity mutual funds are recommended for investment into Equity portion for moderate investor.