Asset classes are a set of securities that can be grouped by their shared characteristics like law, regulations and their behavior in the market over time.
In essence there are four asset classes
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Equities / Shares
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Bonds (Government or corporate)
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Cash
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Real Estate and Commodities
Asset Allocation Process
Asset Allocation is the process of deciding how to distribute wealth among various asset classes and sectors. Asset classes have fluctuating returns and correlations over different time horizons. No one asset class tends to outperform others consistently. Therefore, it is critical to diversify and adapt your portfolio to the dynamic investment climate.
Stabilizing Returns
One of the major benefits of asset allocation is stable returns from your investment.
Asset allocation is the major contributor to portfolio risk and return. Hence, it is important to spread the asset across equity, debt, structured products, private equity, real estate and other alternates to build a portfolio that balances both risk and return well.
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