Proper Asset Allocation Between Equity & Debt Investments

by Mr. Vishwajeet Parashar, Bajaj Capital

Financial investment products are broadly classified into 2 types ­ debt and equity. Though it is important to have a mix of both in one's investment portfolio, the 2 investment classes are different from each other, with a different set of features, advantages & disadvantages.

Debt Instruments..!

Debt instruments, which invest in a range of debt & fixed income products, give you fixed returns on your investment, though the returns are not very high.



Equity investments, on the other hand, provide high returns (generally not fixed), but there is a certain risk associated with them always as they are subject to market volatility.

The various debt investment options available in the market are ­ bank CDs, commercial paper (CP) & government securities. These investments are safer than equities.

8% Vs 15%..!

On the other hand, typical examples of equity investments are ­ investing in shares & equity mutual funds.

Now, debt investments in India give an average return of 8% per annum, while average returns of equity investment may vary from nearly 15% to 25% in long term (about 3 to 5 years) with a considerable amount of risk attached with them.

As the capacity to undertake risks generally reduces with one's age, people prefer to invest more in debt with increase in their age because it involves very minimal risk.

Moreover, equity instruments are long-term investment instruments, in which, if you are invested for a long time, you can sail through the intermediate bull & bear (down) phases and achieve long term returns.

For short term investing, we suggest you to go for debt products for decent & safer returns.

Thumb Rule..!

As a thumb rule, at any given point of time, we advise clients to invest a percentage equivalent to 80 minus their age of their money in equity & the rest in debt instruments.

However, one needs to take care that investing everything in equity alone, / or debt alone, is not recommended.

Asset Allocation..!

What one really needs is a proper asset allocation between both equity & debt.

An unbiased financial adviser / planner would give you such expert advice, as in, how to be invested rightly at any stage of life, keeping in mind factors like your current age, goals, income & expenses..!

About the author..!

Mr. Vishwajeet Parashar is Senior VP marketing at Bajaj Capital

Contact

Bajaj Capital Ltd.
Bajaj House, 97, Nehru Place,
New Delhi – 110 019
Ph: 011 - 4169 3000,2641 0315, 2641 5672, 6418 903/04/06
Fax: 011-2647 6638,6660 8888
Call Centre: (+91 11) 39881010
Email: info@bajajcapital.com

Regional Offices

Northern Region:
Bajaj Capital Ltd.
Bajaj House, 97, Nehru Place, New Delhi - 110019
Phone: 011 -41693000,26410315, 26415672,
6418903/04/06
Fax: 011-2647 6638, 6660 8888
Call Centre: (+91 11)39881010

Southern Region
Bajaj Capital Ltd. 19, Wellington Plaza,
Ground Floor, 90, Anna Salai
Chennai-600 002
Phone: 044 – 2345 1207,8 044 – 2345 1234
Call Center: 044-39881010

Eastern Region
Bajaj Capital Ltd. 507, 5th Floor
7/1, Lord Sinha Road, Kolkata - 700 071
Phone: 033-22820383, 40034380-82
Call center : 033-398 81010

Western Region
Bajaj Capital Ltd.
Unit no. 672, Building No. 6, 7th Floor,
Solitaire Corporate Park, Andheri Kurla Road,
Chakala, Andheri (E), Mumbai- 400 093
Phone: 022 – 4009 9999
Call Centre: 022-3988 1010

For any Grievance, please write to us at: investorgrievance@bajajcapital.com


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