As the festival of Holi draws near, the atmosphere is full of anticipation, joy, and excitement. The colourful environment around us brings back fond memories of picking a favourite colour and smearing it on our loved ones; or of happy colourful ‘barely’ recognizable faces digging into some festive sweets or smiling up to a camera.
Colours have always held a significant place in our lives. How often have our outfits been inspired from the way we are feeling! Each colour, in its different shades and hues, has the potential to evoke a completely different feeling amongst individuals. The same principle applies with investments as well. Each asset category has the potential to deliver a different value to an investor’s portfolio.
Similar to how Holi is incomplete without all colours coming together to spread their joy, a mutual fund portfolio is incomplete without a careful assessment and inclusion of various asset classes that come together to build an investor’s wealth creation journey.
This Holi, let’s undertake an exciting exercise here and aim to assign a different colour to each investment category and dissect its various benefits:
Orange | Equity funds’ rewarding potential
Orange is the colour of enthusiasm and excitement, which may make it a perfect representation of equity mutual funds. Equity mutual funds invest primarily in stocks of companies listed on stock exchanges. These funds are ideally considered by investors with a relatively higher risk appetite and a longer investment horizon. While temporary fluctuations may result in volatility in an investor’s portfolio, investors still tend to invest in this category due to the promise of exposure across market caps (large, mid and small) and demonstrated performance history in the long term.
Green | Fixed income’s penchant for capital preservation
The colour Green has been known to bring a sense of security and calm amongst people. Fixed income strategies could play an instrumental role in acting as the bedrock for the creation of resilient portfolios that offer a sense of stability. The ability of Fixed income to act like ‘portfolio stabilisers’ is primarily the result of duration, which is a measure of the sensitivity of bonds to interest rates that tend to correlate with economic cycles. This stability can enable an investor to rebalance, take advantage of market cycles, and consequently achieve long term investment goals
Yellow | Hybrid funds’ capacity for balance
Yellow is the colour of sunshine and overall joy, making it an ideal representation for hybrid mutual funds. Hybrid mutual fund is a category of mutual fund that invests in more than one asset class in a single product. Since diversification is at their core, these funds are typically equipped with an all-weather long-term investing solution. They usually have lower downside risk and are relatively less volatile in nature, thereby reducing the risk of over-exposure to one asset class
Blue | Passive funds’ aptitude for comfort
Blue is often considered as one of the most comforting colours. As passive funds tend to replicate the performance of a market index, they are relatively more comforting to investors who are wary of volatility or the risk of bias stemming in an actively managed fund. Buoyed by several incentives such as market-linked returns, minimum tracking error, diversification, and transparency in portfolio composition, investors are looking at passive products with a new sense of vigour. In addition to multiple index funds, this universe is armed with several sectoral ETFs as well that allow the investor an all-encompassing diversified portfolio cutting across sectors, geographies, and sometimes, even industries
Purple | International funds’ global potential
Often representative of luxury, panache and elegance, the colour Purple makes for an ideal symbolism for international funds. In India, one can invest in international funds through the Fund of Fund (FoF) option. These funds tend to invest in some of the top global brands that investors may not always have direct access to on our domestic exchanges. For investors seeking to diversify across different geographies and economies and with a higher risk appetite, international funds have the potential to provide exposure to niche sectors and industries, a hedge against currency risk, and be rewarding to the long term investor
This year, Holi is all about diversifying your portfolio and making it more vibrant. By investing in various asset classes through mutual funds, investors can aim to create a well-rounded portfolio that suits their risk appetite and financial goals. Just as the myriad colours of Holi make the festival so special and enjoyable, let’s aim to apply the same lesson to our investments.
Disclaimer: Past performance may or may not be sustained in the future. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.
Raghav Iyengar, Chief Business Officer, Axis AMC
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