Definition of Asset Class
Asset class is a group of securities which are similar by its behavior and characteristics in the marketplace. It is another way of the investment diversification.
Asset class is subjected to the same regulations and laws in the market. The asset class is consisting of equities, cash equivalents, and fixed income.
Explanation of Asset Class
In addition to the types of asset class as mentioned above, some investment professionals also treat commodities and real estate as another classes of asset.
Whatever the class is chosen for investment, each one is subjected to different exposure to risk and return and will perform differently in any environment of the market.
Asset class provides an option to the investors for making investment in different classes because it is better not to put all your eggs in the same basket. Using this approach, an investor is capable enough to make an investment in a balanced portfolio which will not be collapsed completely and reduces risk as well.
A portfolio manager will often have a prescribed way to allocate the investment among different classes of asset, depends on the risk preference of the investor.