Asset Allocation

The most important determinant of an investor’s long run investment results is composition of assets or asset mix in the investor’s portfolio. While factors such as security and manager selection do matter, statistically speaking, their impact keeps falling as investment horizon gets longer leaving asset-allocation as the dominant factor driving investment results.

Thus in any financial planning process, arriving at an appropriate asset allocation is the most important decision variable. In the asset mix, there are likely to be assets which have higher rewards and higher risk such as equities, and assets which have lower rewards and lower risk such as government bonds. In other words, over the long term, policy holders cannot expect equity type of returns by participating in pure debt funds (low risk –low reward) and vice versa.

An investor should balance risk tolerance with the goal of maximizing future value over the investment horizon. Risk tolerance is ability to tolerate either a more likely temporary, or a less likely permanent fall, in the value of investment. Investors who do not have the ability to tolerate fall in value of investment from time to time i.e., volatility in returns should restrict their exposure to riskier asset class of equities. Likewise, investors who have substantial working life ahead and who have limited financial liabilities in the medium-term should take exposure to high level of equities in their overall asset allocation.

We sincerely advice our existing and prospective policy holders to reflect on their risk bearing ability and choose as appropriate asset allocation and thereafter contribute regularly, either monthly/quarterly or yearly basis, to achieve their long term financial goals.

ICICI Prudential Life Insurance Company offers a wide suite of funds which range from equity funds to pure debt funds and also balanced funds (a blend of both debt and equity) available for policy holders with varied risk appetite and investment horizon. Details available in the below Exhibit 1.

(Please refer to individual policy related document for the availability of the funds as per your choice)

Exhibit 1:

Asset allocation	Risk- Reward profile	Invests money	Suitable for
Equity	High risk – High return	Shares or equity of companies , and prone to the volatility in equity markets	Young savers who are in accumulation phase for their long-term uses
Balanced	Medium risk – Medium return	Shares and fixed income securities in different but pre-defined proportions	Middle stage of accumulation phase or last few years of working life
Long term debt	Low risk – Low return	Corporate bonds or government-bonds	Older people retired or close to retirement for whom protection of savings is most important
Short term debt	Low risk – Low return	Highly liquid, virtually risk-free, short-term debt securities of agencies of the Indian Government, banks and corporations and Treasury Bills	For investors who want to park their money for the short-term before some other allocation decision is taken