The Asset. Allocation Guide To. Wealth Creation. Absolute Return. Gold. Vehicle. Real Estate. Tax. An Investor Education Initiative by.

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1 The Asset Allocation Guide To Wealth Creation Real Estate Cash Reserves Vehicle Education Gold Tax Funds Food Car Equities Bonds House Precious Metals Fixed Income Natural Resources Absolute Return

2 Understanding Asset Gold Equities Allocation Cash Fixed Income Real estate An investment asset is something of value that can help you achieve your financial goal. When you allocate investments across assets, you are seeking their best performance. In a way, asset allocation is like a well-balanced meal, which provides for the right dose of carbohydrates, proteins, fats, vitamins and minerals. Just the way a balanced diet, helps in one s growth, asset allocation helps build wealth. Don t put all your eggs in onebasket Why asset allocation? The goal of asset allocation is to maximize returns at a prudent level of risk or to minimise the risk involved in achieving a certain return. The process of determining the appropriate asset allocation involves an analysis not only of available investment choices but also of the needs and preferences of the investor. These are the basic building blocks of an effective asset allocation. Investment assets Cash Cash refers to money in the physical form of currency, which could also be in your bank Precious Metal Equity A stock or any other security representing an ownership interest Rare, naturally occurring metals of high economic value such as gold, silver or platinum 1 A CFA institute research shows that about 90% of the variance in a portfolio s investment returns over time is explained by asset allocation. Thus, the process of determining the percentage of portfolio assets allocated to specific asset classes such as stocks, bonds, real estate and Real Estate Bonds precious metals become very important. Property consisting of Commonly referred as fixed-income 2 land and the buildings securities that investors loans to an on it which is normally entity for a defined period of time at immovable a fixed interest rate.

3 The first step is setting your investment goal. Some common investment goals are: to build sufficient assets for a comfortable retirement; to finance a child s college education; or to make a down payment on a home. If you have more than one goal in mind, you should allocate assets specifically for each goal keeping in mind the time frame of the goal. Investment goals help you focus on why you re investing and keep your plan on course particularly when market volatility tempts you to change your investment strategy. List of goals to save retirement down payment for a house child s education child s marriage saving for house repairs vacation Investment Goals Risk Asset allocation is important, as it helps investors keep a long-term perspective and avoid knee-jerk reactions. Investors have a tendency to chase the best performing segments of the market and shun poorperforming areas. Yet, it is incredibly difficult to guess what areas will continue to shine and who the next market leaders will be. Trying to time the market can have an adverse consequence. Risk and Return Risk and reward are inextricably linked. The greater the potential for an investment to gain substantially in value, the greater the risk it might drop substantially as well. If you want to reap the financial rewards of investing successfully, you have to be willing to take some risk. But risk doesn t mean taking every opportunity that comes along or putting all of your assets on the line in a few highly speculative investments. A proper asset allocation avoids this. COST OF EDUCATION A professional course may cost Rs 5 lakh now. However, factor inflation at different rates and the same will shoot up over the next years. Colour code The market regulator has decided up on colour codes to indicate the level of risk associated with the product. Inflation 6% 8% 10% Cost after 5 years Rs 6.69 lakh Rs 7.34 lakh Rs 8.05 lakh Blue colour box: LOW RISK 3 Cost after 10 years Rs 8.95 lakh Rs lakh Rs lakh Yellow colour box: MEDIUM RISK 4 Cost after 15 years Rs lakh Rs lakh Rs lakh Cost after 20 years Rs lakh Rs lakh Rs lakh Brown colour box: SCHEMES WITH HIGH RISK

4 Diversification Constructing an investment portfolio is like assembling a winning sports team, where a good team is more than the sum of its parts. Each team needs individuals with different strengths so that they work together and out-perform the team with a few star players. Diversification is about finding the right mix among various investment subclasses to reduce your risk exposure to a comfortable level, while taking advantage of the full range of opportunities the investment market has to offer at any given time. Finding the Right Balance Managing your allocation As the value of your investment portfolio increases or decreases, and as your financial goals and time frames change, you will probably want to modify your initial asset allocation. To make the most from your investments, you should review your portfolio from time to time, as convenient to you. The review could result in rebalance to your original asset allocation proportion or you may continue with the change. Investing with a purpose Saving and investing with an objective is crucial which many people are unable to do. Try creating different buckets for different savings and investing needs, the way your grandmother saved money in different pouches for different financial needs or bought gold from time to time for a wedding many years later. As with asset allocation, there is no magic formula for a perfectly diversified portfolio that will work for everyone. In general, though, the more narrowly focused, or concentrated, your portfolio is, the greater the risk you assume. On the flip side, the more broadly diversified Time Horizon 5 your portfolio, and the less you have riding on the performance of any All your investment goals have a time horizon, and that is an important individual investment, the less risk you are exposed to. consideration when determining appropriate investments. Your time 6 horizon is the number of years you have available to invest. It includes the time until you reach your goal, as well as the period during which you make withdrawals from your investment.

5 Personalize, Review, Revise as needed Once you establish your optimal asset allocation which takes into account return objectives, risk tolerance and time horizon, you need to review your investments regularly to see if your portfolio matches your plan and if your plan is still right for your age and goals. When one asset class performs well or poorly, it can shift your asset allocation. You can bring it back in line by rebalancing or selling assets that have appreciated and buying those that have fallen in price. In this way, asset allocation enforces a good discipline of selling high and buying low. Younger investors may want to allocate their longer-term retirement assets to riskier investments such as equities, because they have time to ride out the market s ups and downs. The asset menu Asset Class Features Characteristics Cash Bank accounts, money market funds and CDs are considered cash investments. Equity Bonds An equity investment in a company, gives an investor ownership of a small part of the company. Likewise, equity mutual funds are highly liquid and trade on an exchange. These are fixed-income securities, that pays interest over a fixed term, or period of time. While cash is the most liquid, its real value decreases over time because of inflation. The price of a stock moves up or down depending on how much investors are willing to pay for it at the time. Bonds promise to pay a steady income of regular, fixed-interest payments until maturity.. Making Money with Mutual Funds Mutual funds offer built-in diversification and professional management. They also offer several advantages over purchasing individual stocks and bonds. But, among the most important advantage of a mutual fund is that you can invest your money without needing the time or the experience in choosing investments and it offers the choice of asset allocation suitable to you and select an appropriate type of fund or select a mix of funds to achieve the asset allocation of your choice. There are several advantages in achieving asset allocation with mutual funds. Asset allocation through mutual funds give you the opportunity to benefit from changing market cycles through a higher degree of diversification, and can help reduce overall portfolio risk. Each type of fund seeks to deliver a comprehensive investment strategy; automatic diversification and risk management; forward looking, quarterly tactical rebalancing; simplicity and efficiency. 7 8

6 Asset allocation with funds There are four broad asset classes in which mutual funds can be slotted: Equity, debt, hybrid and commodities such gold. Within each of these assets, rests sub asset-classes. No more can equity funds be painted under a broad diversified equity category as there are largecap funds, mid-cap funds, international equity funds, sectors funds and more. Likewise, the debt category has liquid funds, short-term funds, gilt funds and long-term funds. There is choice within the hybrid funds with varying degree of equity-debt variation. What more, even gold has investments purely in gold or a mix of gold, cash and debt. Know the characteristics of each asset class to make the most of it. Asset class Equity Debt Hybrid Unique characteristics EQUITY hybrid debt Market capitalisation: large, mid, small and combinations within Sector focus: Technology, banking, Pharma Type of security such as gilt Maturity of investments Fixed tenure investments Degree of equity-debt allocation Dynamic asset allocation funds based on age Key points to Remember A well-defined asset allocation strategy plays a critical role as you pursue your long-term financial goals. Here are some key points to remember: An asset allocation strategy spreads your investments across stocks, bonds, cash and commodities which are the major asset classes. You may want to consider diversifying it further within each asset class. Asset allocation can help balance return potential and risk. It can make good sense to adhere to a disciplined investment strategy. As no two investors are alike, your ideal asset allocation strategy takes into account personal factors such as your age, risk tolerance, investment time horizon, liquidity needs and financial goals. Keep in mind that asset allocation, rebalancing and diversification does not ensure a profit or protect against loss in declining markets. Gold Investment in gold through an ETF or Open-end funds with allocation to gold 9 If stocks offer the best potential for growth, they also carry the Based on your comfort with risk, asset allocation strategy and most short-term risk; bonds and cash are less risky, but they investment time frame; pick a combination of funds from the different typically can t match stocks return potential. Understand the 10 fund categories to build a portfolio that best addresses your needs. attributes of each asset before investing in it.

7 For further details contact Registered Office Kotak Mahindra Asset Management Co Ltd 36-38A, 3rd Floor, Nariman Bhawan, 227, Nariman Point, Mumbai Tel: Fax: Corporate Office Address Kotak Mahindra Asset management Company 6th Floor, Vinay Bhavya Complex, 159, CST Road, Kalina, Santacruz (East), Mumbai Tel: (Board Line) Fax: Call Centre: (Toll Free) Services Team Kotak Mahindra Asset Management Co Ltd 6th Floor, Kotak Towers, Building No:21, Infinity Park, Off Western Express Highway, Goregaon - Mulund Link Road, Malad (East), Mumbai Tel: (Board Line) Fax Number: Call Centre: (Toll Free) assetmanagement.kotak.com Also contact us at Delhi (011) /01/02 Kolkata (033) /12 Chennai (044) / Pune (020) /96 Ahmedabad (079) / Hyderabad (040) /41 Bangalore (080) /51 Mutual Fund Investments are subject to market risks, read all scheme related documents carefully