Choose The Right Combination Of Funds

Investors often face the dilemma of choosing the right mix of funds in their portfolios. That’s because there are a variety of funds to choose from in each of the categories. Besides, there are funds that follow different investment philosophies and strategies. While it may be a bit tricky to choose the right combination of funds, it’s important that investors don’t err here as that can not only dent their chances of success but also expose them to unwarranted risks. Therefore, if you are looking to build your mutual fund portfolio, make sure that you select the funds carefully rather than invest randomly. [EasyDNNnews:PaidContentStart]

The key factors in this process should be your time horizon i.e. the period for which you intend to invest, risk profile, investment objectives, and the type of investment strategy you would want to follow. Some of us are naturally risk-averse and invest too conservatively, which impacts our ability to grow our investments at a healthy rate. The difference between a conservative and an aggressive investment approach relates to the proportions of the various instruments that one has in the portfolio. 

A genuinely risk-averse investor generally has a heavy bias towards conservative investment options. Then, there are balanced investors, who are willing to take some risk on their investment to improve their returns. Depending on the level of risk they are willing to take, mutual funds offer debt as well as equity-oriented hybrid schemes. For aggressive investors, there are a number of options. Apart from diversified equity funds, there are specialty and sector funds, both in the active and passive space. It is generally perceived that only young and those investors who can take risks should invest in equities. 

In reality, equity as an asset class helps you stay ahead of inflation and hence it must be an integral part of every portfolio, albeit in the proportion that is in line with one’s risk profile and time horizon. To ensure you are selecting the funds that are appropriate for your needs, consider the following: 

The key factors in the fund selection process should be your time horizon, i.e., the period for which you intend to invest, risk profile, investment objectives, and the type of investment strategy you wish to follow. 

1. Clearly determine what your financial goals are.
2. Consider your timeframe. Do you need money in 12 months or 12 years? The longer your time horizon, the more risk you may be able to take.
3. How do you feel about risk? Are you in a position to tolerate the ups and downs of the stock market for the possibility of higher returns? It is absolutely necessary to know your own risk profile as it can be a guide for choosing the right combination of schemes. 

Remember, regardless of the potential returns, if your time horizon and risk-taking ability doesn’t allow you to be aggressive, it should reflect in your portfolio mix. All these factors will have a direct impact on the schemes you choose as well as your ability to achieve your goals. Therefore, make sure that your desire to take risk doesn’t exceed your capacity to take risk. A long-term approach helps in reaping the benefits from the expertise of the professional fund managers as your mutual fund investments are likely to appreciate steadily over time, overcoming most temporary setbacks. 

While selecting the right combination of funds, ensure a good beginning to your investment process. Monitoring the performance of the portfolio is equally important. Thankfully, there are ample sources such as fact sheets, newsletters and investment portals that allow you to monitor the performance. These are provided by different sources like mutual funds, advisors, investment platforms and entities involved in mutual fund analysis. Although, all this information may seem overwhelming initially, you can learn how to use them gradually to keep your portfolio on track.

[EasyDNNnews:PaidContentEnd] [EasyDNNnews:UnPaidContentStart]

[EasyDNNnews:UnPaidContentEnd]