Importance of Asset Allocation
Asset allocation is the process of determining the mix of stocks, bonds and other
classes of investable assets to match the investor's risk capacity, which includes
attitude towards risk, net income, net worth, knowledge about investing concepts,
and time horizon.
A large part of financial planning is finding an asset allocation that is appropriate
for you in terms of your appetite for and ability to shoulder risk. It also depends
on your financial goals i.e. what are you saving for.
The table below gives an indication on the returns generated by various class of
assets permissible for investing under NPS.
| Asset Class | Risk profile | Constituents | Annualized returns (%) | Annualized Standard Deviation (%) |
| E | High Return, High Risk | Nifty Index Funds | 24.12 | 45.69 |
| G | Low Risk, Low Returns | G-Sec portfolio | 8.13 | 2.04 |
| C | Medium Return for Credit Risk | Corporate Debt | 9.89 | 2.07 |
| for illustration purposes only | ||||
| Data Universe E – Sensex 1984 - 2009 G – 10 year G-Sec 1998 - 2009 C – FD Rates 1984 – 2009 Past performance may or may not be sustained in future |
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