This is the true story of Mr. Dey, a senior citizen based in Mumbai.

Three years & three months ago, he had invested ₹ 50 lacs In Mutual Funds.

As he was predominantly invested in FDs; he was very averse to market volatility. It was the first time he was Investing via Mutual funds - that too such a big amount.

His advisor understood his predicament. Thus investment was done in Dynamic Asset Allocation Portfolio based on time horizon & risk tolerance.

His portfolio has grown to 73+ lacs @ 12% CAGR since inception. This was achieved with average equity exposure of just 45% !!!

Let's appreciate this phenomenon

What is the one thing that made this happen?
Asset Allocation - His investment was done in both Equity and Debt Mutual Funds. While equity as an asset class provided Growth; debt provided much needed cushion or Stability as was evident from his portfolio value of 48 lacs in March'20 - very less downside, isn't it?

His equity exposure was just 45 % in Feb'20. It was increased to 85% in March - April 2020 via Re-balancing orders thus avoiding mistakes due to bias / emotions.

Why is Asset Allocation important?

Rule No.1: Never lose money. 
Rule No.2: Never forget rule No.1. Warren Buffett

In order to not lose money, we need to provide downside protection to our portfolio by having suitable allocation to various asset classes viz. equities, bonds (debt) amongst others.

How the equity and debt proportion was worked out?
The investment was done in Dynamic Asset Allocation (DAA) Portfolio which uses equity valuation, long term G-sec yield, liquidity amongst other parameters to determine the allocation of equity and debt.
More over the portfolio is rebalanced periodically to maintain Asset Allocation as per prevailing market conditions e.g..switching debt into equity to increase equity exposure and vice versa.

What is the past performance of this portfolio?
DAA has delivered 15.35% CAGR returns since inception i.e. since Dec 2013. This was achieved with just 46 % average equity (Returns are as of October 2021)

Tell us about the suitability of DAA portfolio ?
DAA portfolio is suitable for lump sum investments for five plus years.

Learning – Mr. Dey was loss averse but not risk averse, isn't it

If he were risk averse, he would not have invested in Mutual Funds.
However as he was loss averse; due care was taken to mitigate downside risk by investing in Dynamic Asset Allocation Portfolio.