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Thinking about Creating a Mutual Fund Portfolio? Here is How You Can Do It

Submitted by admin on June 4th, 2024

Wealth creation is a continuous journey, with no end point as long as one is alive. However, it always starts with a practical financial decision – how you pick out your funds. The situation is comparable with choosing the best materials and designs subject to one’s affordability so that the person can build a strong structure that will continue to benefit the family for their lifetime. A good architect never goes wrong with his choice. Be like the architect, be like a pro planner.

Diversification is the key to developing a good mutual fund portfolio. When it comes to mutual funds, a well-diversified portfolio can provide investors with a consistently stable return on their investment while pushing the risk to its minimum level.

Through this article, we intend to guide you how to develop a strong, stable and successful mutual fund portfolio.

Risk Assessment

Building a mutual fund portfolio successfully requires an in-depth understanding of the most important elements that play roles in the entire scheme of things. First thing first – define your investment goals – short-term, long-term and medium-term. Once goals are in place, it will help you choose the right avenue to achieve them.

Secondly, risk tolerance is important. Risk appetite is not same for all and depends on various factors including age, income and temperament to make sure that the chosen mutual funds are aligned with your comfort level.

Choosing from Investment Options

The next step is to select the right investment options in keeping with your risk appetite and investment goals. Here are the most popular categories:

• Equity Funds
• Passive Funds
• Flexi Cap Funds
• Multi-Cap Funds
• Debt Funds

A financial expert can provide invaluable service in this regard. He/she can guide you to customize your portfolio according to your present financial condition and future financial aspirations. Some online tools are also available to help you match your investment portfolio.

Resource Allocation Strategy

If you are not sure about navigating the mutual fund landscape, follow the fundamental strategies recommended by financial planners:

Flexi Cap Funds: With these, fund managers are entitled to move between market caps depending on marketing conditions, striking a balance between financial stability and potential growth.

Passive Funds: These funds simulate a market index’s performance, offering cheap options for diversified investments.

Direct and Regular Plans – Making a Choice 

You buy direct mutual funds from the company. This involves no brokers and hence, you can save on broker fees. As a result, the purchase culminates into lower expense ratios. Regular plans are potentially more expensive as these involve brokers’ involvement. However, these can ensure additional advice and guidance.

Investment Mode 

Lump Sum Investment: Investing a lump sum amount at once suits those looking for capitalizing on market conditions.

Systematic Investment Plan: Regular and incremental investments average buying costs and cutting down on market timing risks.

Systematic Withdrawal Plan: It allows for regular withdrawals, building a predictable income channel. This is ideal for retirees.

Systematic Transfer Plan: This plan involves moving funds between schemes, seeking an optimized balance between risk mitigation and potential gains.