PROJECT REPORT ON

“Market Risk, How do Mutual Fund Help An Investor to

Manage that Risk”

INDEX

Sr. No. Particulars Pg. No.

1. Executive Summary. 3

2. Market Risk. 4

3. Common Market Risk. 6

4. How can one Manage Risk. 10

How Does Mutual Fund Help
5. 11
In Managing The Risk.
6. Concept of Mutual Fund. 13
Managing the risk by
7. diversification in terms of Asset 14
Allocation.
8. Asset Allocation Strategies. 20

9. Conclusion. 25

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 Executive Summary

Each and every stock market in the world goes through the risk associated with the
investments. This project is about mutual funds, how they are managed, the risk and
returns associated with the portfolio, how the assets are allocated and how an investor
should take decision in regards to the assets in his portfolio to minimize risk and increase
the returns.

For any portfolio performance, asset allocation is most important factor which is a
systematic division and risk management of investment among various asset classes such as
fixed income or equities. Asset allocation helps in determining the return on the asset, and
of which major part depends on the variation of the securities owned in the portfolio. For
maximum return and minimum risk from any portfolio one needs to use a proper asset
allocation, and not to rely fully on the financial papers, magazines.

The main purpose for asset allocation is to bring out maximum profit for an
investor. An asset allocation is considered through different strategies. For every investor it
is very important to understand the market, different stocks in which he is going to invest
and the risks and returns associated with these stocks. Each and every investment carries
returns and also certain risks. It is on the investor how he uses different strategies of asset
allocation in his portfolio. This project is all about how to manage the risk associated with
the portfolio with the mutual fund.

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 Market Risk: What You Don’t Know Can Hurt You

When the Chinese stock market dropped by 9% during a single day in late February 2007,
markets around the world quickly felt the impact. In the U.S., the Dow Jones Industrial Average
fell by 4.3%, its worst decline since the aftermath of the September 11, 2001 terrorist attacks.

These events underscore how important it is for investors to understand the concept of
market risk, which, like the Chinese stock market example, can result in volatility in one market
impacting other markets. Most investors know that investing involves risks as well as rewards
and that, generally speaking, the higher the risk, the greater the potential reward. While it is
important to consider the risks in the context of a specific investment or asset class, it is equally
critical that investors consider market risk.

Difference Between Business Risk and Market Risk

Risks associated with investing in a particular product, company, or industry sector are called
business or "non-systematic" risks. Common business risks include:

• Management Risk—

Also called company risk, encompasses a wide array of factors than can impact the
value of a specific company. For example, the managers who run the company might
make a bad decision or get embroiled in a scandal, causing a drop in the value of the
company's stocks or bonds. Alternatively, a key competitor might release a better product
or service.

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 • Credit Risk—

Also called default risk, is the chance that a bond issuer will fail to make interest
payments or to pay back your principal when your bond matures.

By contrast, market risk, sometimes referred to as systematic risk, involves factors that affect the
overall economy or securities markets. It is the risk that an overall market will decline, bringing
down the value of an individual investment in a company regardless of that company's growth,
revenues, earnings, management, and capital structure.

Here's an illustration of the concept of market risk: Let's say you decide to buy a
car. You can buy a brand-new car under full warranty. Or you can buy a used car with
no warranty. Your choice will depend on a variety of factors, like how much money
you want to spend, which features you want, how mechanical you are, and, of course,
your risk tolerance. As you research different vehicles, you'll find that some makes and
models have better performance and repair histories than others.

But whichever car you chose, you will face certain risks on the road which have
nothing to do with the car itself, but which can significantly impact your driving
experience - including the weather, road conditions, even animals crossing the
highway at night. While these factors may be out of your control, being aware of them
can help prepare you to navigate them successfully.

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 Common Market Risks

Depending on the nature of the investment, relevant market risks may involve international as
well as domestic factors. Key market risks to be aware of include:

• Interest Rate Risk—

It relates to the risk of reduction in the value of a security due to changes in interest
rates. Interest rate changes directly affect bonds - as interest rates rise, the price of a
previously issued bond falls; conversely, when interest rates fall, bond prices increase. The
rationale is that a bond is a promise of a future stream of payments; an investor will offer less
for a bond that pays-out at a rate lower than the rates offered in the current market. The
opposite also is true. An investor will pay a premium for a bond that pays interest at a rate
higher than those offered in the current market.

For instance, a 10-year, Rs.1, 000 bond issued last year at a 4% interest rate is less
valuable today, when the interest rate has gone up to 6%. Conversely, the same bond
would be more valuable today if interest rates had gone down to 2%.

• Inflation Risk—

It is the risk that general increases in prices of goods and services will reduce the
value of money, and likely negatively impact the value of investments.

For instance, let's say the price of a loaf of bread increases fromRs.10 to Rs.20. In the
past, Rs.20 would buy two loaves, but now Rs.20 can buy only one loaf, resulting in a
decline in purchasing power of money.

Inflation reduces the purchasing power of money and therefore has a negative impact on
investments by reducing their value. This risk is also referred to as Purchasing Power Risk.
Inflation and Interest Rate risks are closely related as interest rates generally go up with

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inflation. To keep pace with inflation and compensate for loss of purchasing power, lenders
will demand increased interest rates.

However, one should note that inflation can be cyclical. During periods of low inflation, new
bonds will likely offer lower interest rates. During such times, investors looking only at
coupon rates may be attracted to investing in low-grade junk bonds carrying coupon rates
similar to the ones that were offered by ordinary bonds during inflation period. Investors
should be aware that such low-grade bonds, while they may to a certain extent compensate
for the low inflation, bear much higher risks.

• Currency Risk—

It comes into play if money needs to be converted to a different currency to purchase or

sell an investment. In such instances, any change in the exchange rate between that currency
and Indian Rupee can increase or reduce your investment return. These risk usually only
impacts one if one invest in stocks or bonds issued by companies based outside the India or
funds that invest in international securities.

For example, assume the current exchange rate of US dollar to British pound is
$1=£0.53. Let's say we invest $1,000 in a UK stock. This will be converted to the local
currency equal to £530 ($1,000 x £0.53 = £530). Six months later, the dollar
strengthens and the exchange rate changes to $1=£0.65. Assuming that the value of the
investment does not change, converting the original investment of £530 into dollars
will fetch us only $815 (£530/£0.65 = $815). Consequently, while the value of the
stock remains unchanged, a change in the exchange rate has devalued the original
investment of $1,000 to $815. On the other hand, if the dollar were to weaken, the
value of the investment would go up. So if the exchange rate changes to $1 = £0.43,
the original investment of $1,000 would increase to $1,233 (£530/£0.43 = $1,233).

• Liquidity Risk—

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 It relates to the risk of not being able to buy or sell investments quickly for a price that
tracks the true underlying value of the asset. Sometimes one may not be able to sell the
investment at all - there may be no buyers for it, resulting in the possibility of one’s
investment being worth little to nothing until there is a buyer for it in the market. The risk is
usually higher in over-the-counter markets and small-capitalization stocks. Foreign
investments pose varying liquidity risks as well. The size of foreign markets, the number of
companies listed and hours of trading may be much different from those in the India.
Additionally, certain countries may have restrictions on investments purchased by foreign
nationals or repatriating them. Thus, one may:

(1) have to purchase securities at a premium;

(2) have difficulty selling your securities;

(3) have to sell them at a discount; or

(4) not be able to bring your money back home.

• Sociopolitical Risk—

It involves the impact on the market in response to political and social events such as a
terrorist attack, war, pandemic, or elections. Such events, whether actual or anticipated, affect
investor attitudes toward the market in general, resulting in system-wide fluctuations in stock
prices. Furthermore, some events can lead to wide-scale disruptions of financial markets,
further exposing investments to risks.

• Country Risk—

It is similar to the Sociopolitical Risk described above, but tied to the foreign country in
which investment is made. It could involve, for example, an overhaul of the country's
government, a change in its policies (e.g., economic, health, retirement), social unrest, or war.
Any of these factors can strongly affect investments made in that country. For example, a
country may nationalize an industry or a company may find itself in the middle of a
nationwide labor strike.

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• Legal Remedies Risk—

is the risk that if one has a problem with his investment, he may not have adequate legal
means to resolve it. When investing in an international market, one often has to rely on the
legal measures available in that country to resolve problems. These measures may be
different from the ones you may be used to in the India. Further, seeking redress can prove to
be expensive and time-consuming if you are required to hire counsel in another country and
travel internationally.

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 How Can One Manage Risk?

While one cannot completely avoid market risks, one can take a number of steps to manage and
minimize them.

• Diversify:

As in the case of business risks, market risks can be mitigated to a certain extent by
diversification - not just at the product or sector level, but also in terms of region (domestic
and foreign) and length of holdings (short- and long-term). One can spread his international
risk by diversifying his investment over several different countries or regions.

• Do Homework:

Learn about the forces that can impact your investment. Stay abreast of global economic
trends and developments. If you are considering investing in a particular sector, for example,
aerospace, read about the future of the aerospace industry. If you are thinking about investing
in foreign securities, learn as much as you can about the market history and volatility, socio-
political stability, trading practices, market and regulatory structure, arbitration and mediation
forums, restrictions on international investing and repatriation of investment.

Learn more about the various types of investments options available to you and their risk
levels. Inflation risk can be managed by holding products that provide purchasing power
protection, such as inflation-linked bonds. Interest rate risk can be managed by holding the
instrument to maturity. Alternatively, holding shorter term bonds and CDs provide the
flexibility to take advantage of higher paying instruments if interest rates go up.

Some investments are more volatile and vulnerable to market risks than others. Selecting
investments that are less likely to fluctuate with changes in the market can help minimize
risks to a certain extent.

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 CONCEPT OF MUTUAL FUND

A Mutual Fund is a trust that pools the savings of a number of investors who share a common
financial goal. The money thus collected is then invested in capital market instruments such as
shares, debentures and other securities. The income earned through these investments and the
capital appreciation realized are shared by its unit holders in proportion to the number of units
owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it
offers an opportunity to invest in a diversified, professionally managed basket of securities at a
relatively low cost. The flow chart below describes broadly the working of a mutual fund:

ADVANTAGES OF MUTUAL FUNDS

The advantages of investing in a Mutual Fund are:

• Professional Management
• Diversification
• Convenient Administration
• Return Potential
• Low Costs

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 • Liquidity
• Transparency
• Flexibility
• Choice of schemes
• Tax benefits
• Well regulated

Managing the risk by diversification in terms of Asset Allocation

Strings, woodwinds and brass. Stocks, bonds and cash. What do these very different things
have in common? They are all parts of a whole and when they work together, they perform
the way none could alone. An orchestra without violins wouldn't sound as good. And a
portfolio without stocks just wouldn't offer peak performance.

Asset allocation is important for portfolio performance. And what exactly is asset
allocation? It's a systematic division and risk management of your investment among various
asset classes such as fixed income or equities. By having a portfolio that holds different types
of investments, you help reduce your risk and portfolio volatility.

Markets and asset classes do not move in tandem: What's hot today may be cold
tomorrow. Spreading your investment among different types of asset classes and markets—
stocks and bonds, domestic and foreign markets—lets you position yourself to seize
opportunities as the performance cycle shifts from one market or asset class to another.

Depending on your investment style and goals, your asset allocation will vary. One
should work with his financial advisor to create a personalized asset allocation for his
portfolio.

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Asset allocation—not stock or mutual fund selection, not market timing—is generally the most
important factor in determining the return on your investments. In fact, according to research
which earned the Nobel Prize, asset allocation (the types or classes of securities owned)
determines approximately 90% of the return. The remaining 10% of the return is determined by
which particular investments (stock, bond, mutual fund, etc.) you select and when you decide to
buy them.

Consequently, buying a "hot" stock or mutual fund recommended by a financial magazine or

newsletter, a brokerage firm or mutual fund family, an advertisement or any other source can be
downright dangerous. One should note that recommendations in publications may be out-of-date,
having been prepared several months prior to the publication date.

As for market timing—that is, moving in and out of an investment or an investment class in
anticipation of a rise or fall in the market—it’s been proven that the modern market cannot be
timed. Market timing strategies, such as moving your money into stocks when the market is
rising or out of stocks when it’s falling, just do not work.

Asset allocation is the cornerstone of good investing. Each investment must be part of an overall
asset allocation plan. And this plan must not be generic (one-size-fits-all), but rather must be
tailored to your specific needs.

Sound financial advice from a trusted and competent advisor is very important as the investment
world is populated by many "advisors" who either are unqualified or don't have your best
interests at heart.

In a nutshell, following are the basic investment guidelines one should live by:

• Determine your financial profile, based on your time horizon, risk tolerance, goals and
financial situation. For more sophisticated investment analysis, this profile should be
translated into a graph or curve by a computer program.
• Find the right mix of "asset classes" for your portfolio. The asset classes should balance
each other in a way that will give the best return for the degree of risk you are willing to

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 take. Financial advisors can determine the proper mix of assets for your financial profile.
Over time, the ideal allocation for you will not remain the same; it will change as your
situation changes or in response to changes in market conditions.
• Choose investments from each class, based on performance and costs.

WHAT IS ASSET ALLOCATION?

Asset allocation is based on the proven theory that the type or class of security you own is much
more important than the particular security itself. Asset allocation is a way to control risk in your
portfolio. The risk is controlled because the six or seven asset classes in the well-balanced
portfolio will react differently to changes in market conditions such as inflation, rising or falling
interest rates, market sectors coming into or falling out of favor, a recession, etc.

Asset allocation should not be confused with simple diversification. Suppose you diversify by
owning 100 or even 1,000 different stocks. You really haven’t done anything to control risk in
your portfolio if those 1,000 stocks all come from only one or two different asset classes—say,
blue chip stocks (which usually fall into the category known as large-capitalization, or large-cap,
stocks) and mid-cap stocks. Those classes will often react to market conditions in a similar way
—they will generally all either go up or down after a given market event. This is known as
"correlation."

Similarly, many investors make the mistake of building a portfolio of various top-performing
growth funds, perhaps thinking that even if one goes down, one or two others will continue to
perform well. The problem here is that growth funds are highly correlated—they tend to move in
the same direction in response to a given market force. Thus, whether you own two or 20 growth
funds, they will tend to react in the same way.

Not only does it lower risk, but asset allocation maximizes returns over a period of time. This is
because the proper blend of six or seven asset classes will allow you to benefit from the returns
in all of those classes.

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HOW DOES ASSET ALLOCATION WORK?

Asset allocation planning can range from the relatively simple to the complex. It can range from
generic recommendations that have no relevance to your specific needs (dangerous) to
recommendations based on sophisticated computer techniques (very reliable although far from
perfect). Between these extremes, it can include recommendations based only on your time
horizon (still risky) or on your time horizon adjusted for your risk tolerance (less risky) or any
combination of factors.

Computerized asset allocations are based on a questionnaire you fill out. Your answers provide
the information the computer needs to become familiar with your unique circumstances. From
the questionnaire will be determined:

• Your investment time horizon (mainly, your age and retirement objectives).
• Your risk threshold (how much of your capital you are willing to lose during a given time
frame), and
• Your financial situation (your wealth, income, expenses, tax bracket, liquidity needs,
etc.).
• Your goals (the financial goals you and your family want to achieve).

The goal of the computer analysis is to determine the best blend of asset classes, in the right
percentages, that will match your particular financial profile.

At this point, the "efficient frontier" concept comes into play. It may sound complex, but it is a
key to investment success.

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WHAT ARE THE ASSET CLASSES?

The securities that exist in today’s financial markets can be divided into four main classes:
stocks, bonds, cash, and foreign holdings, with the first two representing the major part of most
portfolios. These categories can be further subdivided by "style." Let's take a look at these classes
in the context of mutual fund investments:

Equity Funds: The style of an equity fund is a combination of both (1) the fund's particular
investment methodology (growth-oriented, value-oriented or a blend of the two) and (2) the size
of the companies in which it invests (large, medium and small). Combining these two variables –
investment methodology and company size — offers a broad view of a fund's holdings and risk
level. Thus, for equity funds, there are nine possible style combinations, ranging from large
capitalization/value for the safest funds to small capitalization/growth for the riskiest.

Fixed Income Funds: The style of a domestic or international fixed-income fund is to focus on
the two pillars of fixed-income performance — interest-rate sensitivity (based on maturity) and
credit quality. Thus, fixed-income funds are split into three maturity groups (short-term,
intermediate-term, and long-term) and three credit-quality groups (high, medium and low). These
groupings display a portfolio's effective maturity and credit quality to provide an overall
representation of the fund's risk, given the length and quality of bonds in its portfolio.

HOW ARE ASSET ALLOCATION MODELS BUILT?

Simply stated, financial advisors build asset allocation models by (1) taking historic market data
on classes of securities, individual securities, interest rates and various market conditions; (2)
applying projections of future economic conditions and other relevant factors; (3) analyzing,
comparing and weighting the data with computer programs; and (4) further analyzing the data to
create model portfolios.

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There are three key areas that determine investment performance for each asset class:

• Expected return. This is an estimate of what the asset class will earn in the future—
both income and capital gain—based on both historical performance and economic
projections.

• Risk. This is measured by looking to the asset class’s past performance.

If an investment’s returns are volatile (vary widely from year to year), it is considered
high-risk.

• Correlation. Correlation is determined by viewing the extent it which asset classes tend
to rise and fall together. If there is a high correlation, a decision to invest in these asset
classes increases risk. The correct asset mix will have a low correlation among asset
classes. Correlation coefficients are calculated by looking back over the historical
performance of the asset classes being compared. One should note that the ideal asset
allocation model for you will change over time, due to changes in your portfolio, market
conditions and your individual circumstances. There will probably be shifts in the
percentages allocated to asset classes, and possibly some changes in the asset classes
themselves.

WHAT IS RIGHT FOR THE INVESTOR?

It’s important to be informed about asset allocation so as to avoid the "cookie cutter" approach
that many investors end up accepting. Many of the asset allocations performed today take this
"one size fits all" approach.

There are all sorts of investment recommendations continually flowing from the financial press.
The key question is: Are they suitable for the investor?

Regardless of the approach one takes, be sure that an asset allocation takes into account his
financial profile to the extent feasible.

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 Asset Allocation Strategies.

Establishing an appropriate asset mix is a dynamic process, and it plays a key role in determining
your portfolio's overall risk and return. As such, your portfolio's asset mix should reflect your
goals at any point in time. There are a few different strategies of establishing asset allocations,
and here we outline some of them and examine their basic management approaches.

The science of asset allocation can be based upon either a fixed approach or it can be dynamic.

Traditional Asset Allocation:

The traditional approach to asset allocation involves setting fixed, or static, allocations of
your portfolio between different asset classes or investment types. Traditionally, an investment
advisor will consider stocks, bonds, real estate and cash as the primary types of asset classes.
Using asset allocation, advisors will recommend how much of your total investment portfolio
should be allocated to each asset class or type of investment.

The fixed asset allocation approach has proven somewhat effective in moderating overall
portfolio risk. The strategy works by incorporating a mix of different asset classes with low
statistical correlation ... whose price movements tend to be out of synch with each other. The
hope is that your various investments won't all be going up or down in value at the same time. If
they do not, then you have reduced the risk of a large loss in your portfolio.

• Importantly, asset allocation also works by reducing your allocation in historically

volatile asset classes such as stocks.

Fixed asset allocation is fundamentally a passive approach. It is based on an academic theory

which says that markets are "efficient" and that the price movement of investments cannot be
predicted. However, the weakness of the passive asset allocation method is this-

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 • At most times over the life of the portfolio, certain assets in the allocation will be
seriously underperforming. This simple fact results in a severe inefficiency. The
approach doesn’t take the market conditions of any asset class into account.

Traditional asset allocation presents the investor with a difficult tradeoff ... reducing long term
returns in order to reduce short-term risk.

Dynamic and tactical asset allocation.

A "Dynamic" approach to asset allocation can increase returns and also reduce portfolio risk.
The practice of dynamic asset allocation (also called tactical or active asset allocation) has grown
in recent years due to the success of various computerized market timing techniques in analyzing
market trends. These new technologies typically don’t predict future market movements as much
as they identify changes in trend direction and evaluate the risk of changes in a trend. They are
good at following the market's trends tightly and reacting quickly to changing condition.

With this advanced technology, the asset allocation practitioner can respond dynamically to the
market and significantly increase risk-adjusted return over time by:

• Avoiding bear markets and periods of under-performance in the various asset

classes--either by reducing or eliminating the allocation of the under-performing
asset (e.g., getting out of the market).

• Increasing the allocation of asset classes currently in bull markets that are over-
performing.

Therefore, dynamic asset allocation eliminates the key weakness found in the traditional, fixed
approach that routinely allows periods of under-performance. The portfolio mix of our generic
Model Portfolios will shift dynamically over time to avoid periods of under-performance and
move into investment types that are performing well. The net effect is reduced losses, lower
volatility, higher average returns and a much stronger risk-adjusted return.

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A higher allocation in stocks drives much stronger long-term returns.
The dynamic approach to asset allocation has the inherent ability to tolerate a higher allocation to
volatile asset classes such as stocks without increasing the riskiness of your portfolio. This is true
when the asset allocation program is driven by advanced market timing technology that can react
quickly to changes in market trend.

• If you can quickly exit the stock market before a bear market can hurt you, why not
hold a higher allocation when stocks are performing well and out-performing other
asset classes?

The truth is that trends become evident in the markets on a regular basis ... and the trends tend to
persist for a period of time. Higher portfolio allocations to the more volatile asset classes can be
managed safely in a dynamic approach when a trend can be identified in the asset and a safe exit
point can be determined at the time the trend ends.

More efficiently capture changes in sector performance

A passive approach to asset allocation doesn’t allow you to take advantage of periods when
Small cap stocks, for example, out-perform large cap stocks or vice-versa. Active asset allocation
gives you this ability. You can even use a dynamic approach to capitalize on special asset sectors
such as Energy, Precious Metals or International Stocks when they are hot.

Dynamic approaches to asset allocation are inherently more efficient than the traditional, fixed
approach. They can significantly boost returns over time by quickly reacting to changing market
conditions for various asset classes and sectors, capturing periods of over-performance and
avoiding periods of under-performance.

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Strategic Asset Allocation

Strategic asset allocation is a method that establishes and adhere to what is a 'base policy mix'.
This is a proportional combination of assets based on expected rates of return for each asset class.
For example, if stocks have historically returned 10% per year and bonds have returned 5%
per year, a mix of 50% stocks and 50% bonds would be expected to return 7.5% per year.

Constant-Weighting Asset Allocation

Strategic asset allocation generally implies a buy-and-hold strategy, even as the shift in
the values of assets cause a drift from the initially established policy mix. For this reason, you
may choose to adopt a constant-weighting approach to asset allocation. With this approach, you
continually rebalance your portfolio. For example, if one asset were declining in value, you
would purchase more of that asset, and if that asset value should increase, you would sell it.
There are no hard-and-fast rules for the timing of portfolio rebalancing under strategic or
constant-weighting asset allocation. However, a common rule of thumb is that the portfolio
should be rebalanced to its original mix when any given asset class moves more than 5% from its
original value.

Tactical Asset Allocation

Over the long run, a strategic asset allocation strategy may seem relatively rigid. Therefore, you
may find it necessary to occasionally engage in short-term, tactical deviations from the mix in
order to capitalize on unusual or exceptional investment opportunities. This flexibility adds a
component of market timing to the portfolio, allowing you to participate in economic conditions
that are more favorable for one asset class than for others.

Tactical asset allocation can be described as a moderately active strategy, since the overall
strategic asset mix is returned to when desired short-term profits are achieved. This strategy
demands some discipline, as you must first be able to recognize when short-term opportunities
have run their course, and then rebalance the portfolio to the long-term asset position.

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Insured Asset Allocation

With an insured asset allocation strategy, you establish a base portfolio value under which
the portfolio should not be allowed to drop. As long as the portfolio achieves a return above its
base, you exercise active management to try to increase the portfolio value as much as possible.
If, however, the portfolio should ever drop to the base value, you invest in risk-free assets so that
the base value becomes fixed. At such time, you would consult with your advisor on re-allocating
assets, perhaps even changing your investment strategy entirely.

You can implement an insured asset allocation strategy with a formula approach or a
portfolio insurance approach. The formula approach is a graduated strategy: as the portfolio
value decreases, you purchase more and more risk-free assets so that when the portfolio reaches
its base level, you are entirely invested in risk-free assets. With the portfolio insurance approach
you would use put options and/or futures contracts to preserve the base capital. Both approaches
are considered active management strategies, but when the base amount is reached, you are
adopting a passive approach.

Insured asset allocation may be suitable for risk-averse investors who desire a certain level
of active portfolio management but appreciate the security of establishing a guaranteed floor
below which the portfolio is not allowed to decline. For example, an investor who wishes to
establish a minimum standard of living during retirement might find an insured asset allocation
strategy ideally suited to his or her management goals.

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 Conclusion

One should note markets and asset classes do not move in tandem. The investor
has to spread his investment among different types of asset classes and markets—
stocks and bonds, domestic and foreign markets— so that he can position yourself
to seize opportunities as the performance cycle shifts from one market or asset
class to another. This spread helps him to get a consistent and better return which
will help him to fulfill his financial commitment.

The asset allocation should vary according to the investment style and goals of an
investor. For this an investor should take help a Financial Advisor as he has the
better knowledge about the various assets which gives better and consistent return,
and if the asset is not performing well then he can make the necessary changes in the
asset allocation in the portfoilo.

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