Asset allocation is dividing your investments among different asset classes, such as equity, debt, gold, and real estate based on your goals, risk tolerance, and time horizon. Asset allocation is important because it reduces portfolio risk, improves risk-adjusted returns, and aligns investments with your goals

Based on the time horizon of your financial goals, you can invest as follows   

• 0–3 years: Money market funds, debt mutual funds, FDs
• 3–5 years: Hybrid mutual funds, bonds, FDs
• 5+ years: Equity mutual funds, PPF, gold, real estate