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Mutual Funds

Dealing With All AMCS

Introduction to Asset Class

As per definition, a 'Asset Class' is a group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same laws and regulations. Asset Class is an often used word in finance, especially investment & portfolio management.

Broadly speaking, there are three main asset classes which are equities (stocks), fixed-income (bonds) and cash equivalents (money market instruments). However, in addition to the three main asset classes, some investment professionals would add real estate and commodities, and possibly other types of investments, to the asset class mix.

How do asset classes differ?

Each asset class is different and there are many points of difference against other asset classes. These differences ultimately impact the investment objectives and performance. The asset classes may differ upon the following things...

  • Nature and characteristics
  • Correlation with other asset classes
  • Risk and Returns potential / trade-off
  • Ideal investment horizon
  • Behaviour w.r.t. markets, interest rates, economic environment, etc.
  • Rules, regulations and taxation

Types of asset classes:

There are broadly three basic asset classes considered by most investment experts: (i) Equity securities (ii) Fixed Income or Debt securities and (iii) Cash equivalents. In addition to this, (iv) Real Estate and (v) Commodities are also considered by many as important asset classes given their characteristics and penetration among investors.


Long term equity as an asset class has outperformed other asset classes in India as well as in more developed economies. Equity basically enables efficient movement of funds from people having excess to businesses that need it to fund growth and business operations. Equity is a risky asset class and investments should be made for long term. The returns from such investments are in form of capital gains by price appreciation and/or dividend payments by companies.

In India, the equities are largely held directly through stock exchange or indirectly through mutual fund equity schemes. Exposure to equity can also be made through Exchange Traded Funds (ETFs) and Portfolio Management Schemes (PMS) and indirectly through pension schemes / plans that invest in equities. Insurance products, especially Unit Linked Plans (ULIPs) is an another well known route. Equity can also be held in form of stakes or Private Equity in businesses. This option, however, is limited super HNI and corporate investors.


Debt is an another asset class which you would be very familiar with. Some of the popular avenues of debt investments are through Fixed Deposits of banks & corporates and bonds issued by governments, RBI and the likes. Small Saving schemes and pension plans by government are another major avenues for investing. Mutual funds schemes are lately becoming popular with retail investors too. The mutual funds offer a wide variety of products to suit every need and risk profile of the customer. It is a relatively less risky asset class and returns are generally in form of interest payments and/or capital gains due to impact of interest rates changes over time.


Commodities may be treated as a distinct asset class since their nature and behaviour differs from the other asset classes. Indians have been traditional investors in 'gold' as a commodity. Other commodities are now finding a favour with investors, albeit slowly. Precious metals like Gold & silver remain the biggest avenue for investment and awareness & exposure to other commodities is very low. The impressive performance of these metals over past few years have made them as asset class hard to be ignored by investors.

The commodity prices tend to follow the cyclical pattern of underlying commodities which is why it is important to understand the demand-supply factors. Needless to say, this is not an asset class for the less informed or the faint hearted, especially for agro-commodities & base metals. Investment is generally for short to medium term and the idea is to profit from price movements or hedge against actual exposure. As an asset class, commodities have been observed to have low correlation with the other asset classes and hence offer excellent potential for portfolio diversification. Investments into Gold specially has also become more convenient & practical for investors with the launch of Gold ETFs and mutual fund schemes.


As an asset class, cash and cash equivalents is unlike any other asset class. The purpose of holding cash is either for transaction / payment reason or as a precaution for any eventuality or as a buffer for taking advantage of opportunities in other asset classes/ products. Cash is the least productive of all asset classes and delivers little or no returns and over time looses out its real value as well. Cash equivalent holdings are dictated by convenience, comfort and cash habits of people. As an investor, one should try to minimise cash equivalent holdings to an optimum level that strictly meets your needs. Mutual fund liquid funds is considered as the ideal avenue for putting aside money for short durations, giving advantages of superior post-tax returns, high liquidity, very low costs & convenience.

Using Asset Classes:

Understanding of the asset classes leads us to the question – Whats' next?. The usage of different asset classes are basically two fold. First, the understanding is useful for purpose of diversification to optimise risk-return trade-off. This is because different asset classes perform differently in different markets and also differently from each other. Diversification only works when you combine assets that have opposite or low correlation with each other. The second idea is to decide and follow the 'asset allocation' strategy. The asset allocation strategy has been cited by investment managers & experts as the biggest deciding factor for long term wealth creation. Financial advisors have propagated asset allocation strategies of tactical, dynamic and strategic in nature to their investors keeping in mind their risk profile.

We have tie-ups with all Asset Management Companies (AMCs) and all mutual funds schemes are part of the product basket.

Classification of Funds

  • 1 Liquid Funds
  • 2 Debt Funds
  • 3 Gold Funds
  • 4 Equity Funds
  • A General Purpose
  • B Tax Saving Funds