- Date : 29/03/2022
- Read: 3 mins
Do you want to make a fresh start with your mutual fund portfolio? Perhaps you've already purchased mutual funds and wish to reactivate them? You should remember the point that: there is no such thing as a "perfect mutual fund portfolio."
Do you want to start from the ground up with your mutual fund portfolio? Maybe you've already purchased mutual funds and wish to reactivate them? You should not waste your time building a "perfect mutual fund portfolio" because there is no such thing. There are a lot of decent portfolios, but there's no such thing as a one-size-fits-all in mutual funds.
So, how should you go about putting together a mutual fund portfolio?
The first thing to consider is why you're investing and what's your end goal. The ideal approach for ordinary people to handle their money is to maintain a separate portfolio for each financial aim. Alternatively, you can group the related goals and create portfolios for them. For instance, a portfolio for retirement, a portfolio for a child's schooling (or marriage), and so on.
When you start thinking about your investment goals, you'll be able to answer questions like how much money you'll need, when you'll need it, and what kind of returns you should aim for. Assume the target asset allocation in equity: debt was 50:50 per cent at the outset. The stocks did well as a result of the current market boom, and the stock weighting grew to 60%. The investor can now sell stock units and buy debt instruments to return the portfolio allocations to the original allocation. Many investors buy a few funds and keep the units regardless of how well they perform. For a variety of reasons, this is frequently counterproductive:
1. As there is no diversification, the danger increases because all of the eggs are housed in one or two baskets.
2. Opportunity Cost - At different periods, different market sectors outperform the others.
Building a portfolio that aligns with your objectives and monitoring it regularly can significantly improve your returns.
How do you choose funds once you've decided on the allocation, categories, and amount of funds?
Although there are various things to consider, it is ideal to choose well-established funds from a variety of reputable fund houses and have a track record of outperforming benchmark and peer groups. Although it's recommended that you don't base your investment decisions just on historical performance, it's always better to stick with funds that produce consistent returns over market cycles.
Choosing funds for your portfolio should be based on your investment goals, risk tolerance, and investment term, just like any other investment. Investors seek a diversified portfolio that keeps their objectives in focus and inherent risks in check. You can begin by deciding which fund category you want to invest in. After you've decided on a category, you can look at the numerous schemes offered by various fund institutions. Before deciding on a programme, think about your age, income, and financial objectives. A word of caution: the "one size fits all" approach should be avoided.
Finally, don't base your portfolio on star ratings if you want to establish a decent and well-diversified portfolio. They're fine at first, but you'll need to dig deeper to settle the funds. Building a successful mutual fund portfolio involves considerable planning, depending on your specific financial goals. It's great if you can do it yourself. If everything else fails, seek the advice of an investing expert.