EDGE is an asset allocation framework, where you diversify your portfolio across four asset classes:- We will discuss the characteristics of each asset class in brief:- The chart below shows the annual returns of different asset classes over the last 10 years or so. You can see that different asset classes have outperformed / underperformed each other in different periods. In the chart below, domestic equity is represented by Nifty 50 TRI, debt by Nifty 10 year Benchmark G-Sec Index, gold by gold prices in INR and international equity by S&P 500 in INR. Please note that we are using S&P 500 in INR as a proxy for international equity purely for illustrative purposes. S&P 500 is the benchmark index of 500 large cap companies in the US and is one of the most globally recognized market benchmark indices of equities. Source: National Stock Exchange, Advisorkhoj Research, Yahoo Finance, as on 31st December 2022. Equity: Nifty 50 TRI, Debt: Nifty 10 year Benchmark G-Sec Index, Gold: Domestic price (INR) of gold, International Equity: S&P 500 in INR. Disclaimer: Past performance may or may not be sustained in the future. The above illustration is purely for investor education purposes and should not be construed as investment recommendations. You should invest according to your risk appetite and investment needs; consult with your financial advisor before investing. We are using a hypothetical multi asset portfolio comprising of the EDGE asset classes to see how they may have performed over the last 10 years versus the Nifty 50 TRI. The hypothetical portfolio comprises of 70% domestic equity (Nifty 50 TRI), 10% debt (Nifty 10 year Benchmark G-Sec), 10% gold and 10% international equities (S&P 500 in INR). The chart below shows the growth of Rs 10,000 investment in this hypothetical portfolio versus the Nifty 50 TRI. The 10 year CAGR returnof the portfolio was 12%, while the 10 year CAGR return of Nifty 50 TRI was 13% (source: Advisorkhoj Research, as on 31st December 2022). Source: National Stock Exchange, Advisorkhoj Research, Yahoo Finance, as on 31st December 2022. Portfolio comprises of 70% Nifty 50 TRI, 10% Nifty 10 year Benchmark G-Sec Index, 10% gold (in INR) and 10% S&P 500 (in INR). Disclaimer: Past performance may or may not be sustained in the future. The above illustration is purely for investor education purposes and should not be construed as investment recommendations. You should invest according to your risk appetite and investment needs; consult with your financial advisor before investing. You can see that the returns of the hypothetical multi asset portfolio comprising of domestic equity, debt, gold and international equity was similar to Nifty. Let us now see how the portfolio performed in market corrections. You can see that the hypothetical portfolio comprising of the EDGE asset classes was able to limit downside risks compared to Nifty. This is because some of the asset classes in the hypothetical portfolio e.g. gold, international equities outperformed when domestic equities underperformed. You can see that multi asset allocation has the potential of generating risk adjusted returns. Source: National Stock Exchange, Advisorkhoj Research, Yahoo Finance, as on 31st December 2022. Portfolio comprises of 70% Nifty 50 TRI, 10% Nifty 10 year Benchmark G-Sec Index, 10% gold (in INR) and 10% S&P 500 (in INR). Disclaimer: Past performance may or may not be sustained in the future. The above illustration is purely for investor education purposes and should not be construed as investment recommendations. You should invest according to your risk appetite and investment needs; consult with your financial advisor before investing. Investors should consult with their financial advisors, if multi asset allocation funds are suitable for their investment needs. All investors have to go through a one-time KYC (Know Your Customer) process. Investors to invest only with SEBI registered Mutual Funds. For further information on KYC, list of SEBI registered Mutual Funds and redressal of complaints including details about SEBI SCORES portal. Mutual Fund Investments are subject to market risk, read all scheme related documents carefully.
You need to have high risk appetite for equity as an asset class. The main investment objective for investing in domestic equity is capital appreciation or wealth creation. You can get exposure to domestic equity either by directly investing in stocks or through equity mutual funds. Equity mutual funds are managed by professional fund managers and offer the benefits of risk diversification.
Asset allocation to debt reduces downside risks, brings stability to your investment portfolio and generates income for investors. They are suitable for investors with conservative to moderate risk appetites or for investors who need regular income from their investments. Debt mutual funds are suitable and tax efficient investment options for investors who want exposure to debt as an asset class.
Gold is also an important asset class for asset allocation purpose, since it is usually counter-cyclical to equities i.e. gold outperforms when equity underperforms and vice versa. Gold is suitable for investors with long investment horizons and conservative to moderate risk appetites. Adding gold to your investment portfolio will bring more stability to your portfolio. Gold Exchange Traded Funds (ETFs) or gold Fund of Funds (FOFs) are highly convenient, safe and cost efficient investment options if you want to take exposure in gold for investment purposes.
Secondly, there is low or even negative correlation between returns of the different countries (we will discuss this in more details in the next section). Investing in international equities will provide stability to your equity portfolio during periods when domestic equity underperforms. Thirdly, investing in international equities can provide you exposure to global themes and megatrends, which are not yet fully developed in India e.g. Artificial Intelligence, Cyber security, Fintech, E-Commerce, Cloud Computing, Social Media, Gaming, Electric Vehicles, Semiconductors etc. Finally, you can benefit from currency depreciation by investing in international equities, especially in counties e.g. United States, where the foreign currency (e.g. USD) is appreciating against the Indian Rupee (INR). You can get exposure to international equities by investing international Fund of Funds.How investing in EDGE asset allocation diversifies risk?
How multi asset allocation may have performed?
Who should invest in multi asset allocation funds?
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Blog Diversifying across multiple asset classes can balance risk and returns better