Posted in Finance, Accounting and Economics Terms, Total Reads: 301
Definition: Life-Cycle Fund
These are type of mutual funds in which the asset allocation to different asset classes changes with time. This automatic change is according to the risk aversion of investor with respect to some defined factor. This factor is mostly age. Hence, this is also called age-based fund.
Putting your money in a life-cycle fund is like putting money in a dynamic fund which changes its profile and composition with time. A person who is looking for a fund which at the younger period of his life is open to take risk and after attaining a particular age is not much interested in the same.
Let’s say that you are a person with age around 25 years. Now as an investor you are looking to invest in a mutual fund but you are the type of investor who doesn’t want to switch between funds. Means he wants to invest for his life time. In this case a life cycle fund is a very good option as it will change the risk profile of fund.