Mutual funds over the last few years have become quite popular and a preferred option for investors. The surge in a number of folios and investors is encouraging and promising as more investors are looking forward to investing in it. Mutual Funds offer the expertise of experienced fund managers, investment across asset classes, diversification in different companies, and opportunities to invest with small ticket sizes as well. There is no doubt about the potential of mutual funds when it comes to building your investment portfolio.
Here are few pointers that you can consider making the most of your mutual fund investments if you are already investing or planning to start investing in mutual funds.
Start with your financial objectives
At any point in time, you will have multiple financial objectives. Each of these financial objectives has its own significance in your life. Mutual funds do offer different options that can help you to invest and create a corpus for each of your financial objectives. Be it short-term goals like saving for a vacation or buying a new vehicle, mid-term goals like accumulating down payment for your new home, and long-term goals like retirement or child’s education; mutual funds can help you take care of all these objectives. Hence, the best way is to first identify and define your financial objectives, then plan and align your mutual fund investments with these financial goals.
Invest according to the timelines of your goals
As shared earlier there are funds for each timeline or investment horizon. To make the most from your mutual fund investment and avoid a mismatch in expectations, you should invest in funds that best suit your financial goal timeline. For goals that are short-term in nature, you can look at liquid funds, ultra-short duration funds, and short-duration funds. Your mid-term goals can be taken care of with medium-duration debt funds or Banking and PSU debt funds, whereas equity-oriented funds work best for your long-term goals. A mismatch based on time horizon can prove costly, e.g. if you are investing in short or medium duration debt funds for your long term goals; you will not be able to make the most from your investment as you have to invest more, and you could have taken more risk by investing in equity funds as you had more time at your end too. The opposite was investing in equity funds for short-term goals can prove equally costly.
Choose the right funds that suit you
There are hundreds of mutual fund schemes to invest in across different categories. Selecting the right set of funds based on your needs and your profile is important. Like in equity funds there are indexes, large-cap, large & mid-cap, Flexi cap, mid-cap, and small-cap funds commonly known as equity diversified funds. There are thematic or sectoral funds that invest in a particular theme or sector, where the risk is high as the investment is in a particular sector or a theme. There are mid-cap and small-cap funds that carry higher risk at the same time have the potential to generate a higher return. Likewise in debt to there are different kinds of funds. You should invest in those funds that suit your future needs and risk-taking ability.
Review your investment at regular intervals
After putting in all the above-mentioned efforts and getting it right, doing a periodic review of your mutual fund portfolio every six months is a good strategy. The review should focus on how your investments are working for your goals and are there any funds that need to be rebooked. We have to keep in mind that equity-oriented funds can go through cycles and hence keeping faith in the funds is equally important. Avoid changing the funds just because they are under-performing in short term. You should only exit the fund if there is a fundamental change in the attributes of the fund, e.g. the fund changes its mandate from large-cap to multi-cap. Or if the fund is underperforming its peers for more than 2 to 3 quarters. It is not possible to always have the best funds across all categories in your portfolio all the time as funds go through performance cycles. Hence, these reviews will help you to remain focused on objectives and not just funds. Rebalanced the portfolio only if required, don’t rebalanced it for sake of investing in what is trending.
Coming to the last one but important, i.e. patience which will be tested throughout the time you remain invested. The key however is to remain calm and keep the eye on the overall progress of your mutual fund portfolio and not just how few funds perform.