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96. '' Asset allocation is of many kinds.'' In this context , explain what are the various types of asset allocation ?
The two main asset classes are debt and equity . Popular perception is that equity is risky, while debt is safe. However, it needs to be remembered that debt securities are as susceptible to daily change in values as equity securities . Thus there is a potential for capital gain or risk of capital erosion in both equity and debt . Futher , the real returns on debt (i.e., returns net of inflation ) may or may not be positive . Equity , on the other hand, can be an effective hedge agianst inflation .particularly in normal inflation situations. Fundamentally the value of debt securities depends on interest rates and credit risk of the borrwers . Equity valuation on the other hand, vary with corporate performance and prospects and the overall market sentiment . Given the diversity in the factors underlying debt and equity valuation , investors normally benefit by having a mix of both asset classes. Distribution of the portfolio between asset classes is referred to as asset allocation Futher , asset allocation is of many kinds.
Ans: Types of Asset Allocation
- Strategic Asset Allocation
- Tactical Asset Allocation
- Insured Asset Allocation