Birla Sun Life Asset Allocation Fund is an open ended Fund of Fund Scheme. The Conservative Plan is ideally suited for an investor having a Conservative risk profile. It provides a convenient and inexpensive way of creating a basket of funds for the investor, which is rebalanced monthly. The scheme has the option of investing upto 30% of its assets in schemes managed by other Mutual Funds.

THE CONCEPT OF ASSET ALLOCATION

Asset allocation strategy is based on the concept of risk diversification. Investments in financial instruments are recommended based on the risk appetite of the investor. Through asset allocation, investors can decide on the best mix of debt and equity, which is commensurate with their risk profile.

The advantages of asset allocation strategy include:

	Diversification across asset classes and across schemes within an asset class.
	Structuring based on specific risk profiles.
	Ability to maintain the asset allocation by continuous rebalancing.
	Asset allocation strategy follows the basic principles of investing - investing more in equities when the markets are down and booking gains periodically.

Even though asset allocation as a strategy has always proven to be beneficial to the investors, very few investors follow it because of various constraints like:

	Lack of knowledge: Investor may not choose the right allocation.
	Lack of time and consistency: The rebalancing is adhoc rather than planned.
	Costs involved: Loads prove to be a deterrent for rebalancing.
	Lack of liquidity: Investors may have invested in securities which are not liquid or where there is a lock-in period.
	Taxation issues also prevent investors from rebalancing their portfolios. If investors rebalance their assets before one year, they are liable to pay short-term capital gains tax on the gains.
	Paperwork: Besides all the above, carrying out rebalancing would require a lot of paperwork making it inconvenient for an individual investor.