Mutual Fund Portfolio

While there is no formula for building a Mutual fund portfolio, the following aspects can help you achieve optimum results:

1. Investment Objective –

   As a rule of the thumb, no investment should be made without an objective in place. Why are you investing in this scheme? Does it align with your financial goals? Or is your decision being influenced by suggestions from friends or tips from a news channel?

   Before you sign the dotted line, pick up a piece of paper and write down what do you want to achieve from your investments. Some common objectives are:

   Retirement corpus | Children’s education | Buying a house | Regular income

   An investment objective will help you select schemes that work together and get you closer to your goals.

Time horizon –

Returns from investment are usually intricately linked to the time horizon of your investment. There are funds which are dedicated to long term investments and others who are designed for investors with a short or medium term investment preference. Think well and decide how long would you prefer to stay invested.

Your age and risk preference –

A 25 year old investor can afford to take higher risks as compared to a 40 year old. Being young gives you the opportunity to recover from losses, if any without disturbing your financial goals. Also, the risk appetite plays an important role in determining the choice of funds.

Optimal diversification –

The keyword here is optimal. Too much diversification can make it cumbersome to monitor and track individual scheme’s performance. More often than not, investors tend to follow the ‘pray and wait’ methodology when they diversify too much. Not a prudent thing to do. On the other hand, not diversifying enough can expose your invested capital to risks – the all eggs in one basket phenomenon.

Hence, it is important that an investor diversifies enough to hedge risks while ensuring that he/ she can monitor the investments regularly.

Number of schemes –

There are many investors who get carried away by the sight of a new investment ‘unicorn’ in the market. These investors typically end up with more than 30-40 different funds in their portfolio. A classic example of investing without a plan. Most experts believe that around seven to eight schemes across different asset classes is ideal for a Mutual fund portfolio.

Invest in multiple fund houses –

Taking a leaf from diversification, it is not just the schemes or the asset classes that you need to diversify across. Investing all your funds into different schemes of the same fund house also carries an element of risk. Ensure that you invest across two or three fund houses. This also allows you to benefit from different investment strategies followed by these fund houses.

Seek Financial Planning assistance –

Unless you are a finance professional, having updated market information and the time to analyze performance reports is difficult. A financial advisor spends his/ her time analyzing and studying market behavior and trends. Creating a portfolio under guidance of such professionals can help you make informed decisions and stick to your investment objectives.

Monitor regularly –

The idea of creating a portfolio is to enable you to monitor your investments on a regular basis. However, you must be vary of taking emotion-driven decisions. A small drop in prices might set the cat among the pigeons in your mind, but it might be regular behavior of the underlying assets of the scheme. Keep track of the performance of your investments but also understand the historical performance of the underlying assets in both bullish and bearish phases of the market.

Remember, a Mutual fund portfolio has to be built in a manner that aligns your financial needs to the investments made. It should be able to give a bird’s eye view of your investments and allow you to manage them with ease.