Build An Efficient MF Portfolio

Mutual funds are a simple and an efficient investment vehicle. However, if you want to benefit from the true potential of this wonderful investment vehicle, you need to plan your investments well and build a portfolio that has the right mix funds to deliver the desired results. Here’s how you can get the best out of your mutual fund portfolio. 

1) Choose funds that are suitable for your time horizon.
One of the key benefits of investing in mutual funds is that they provide numerous options to allow you to practice asset allocation and build a portfolio in line with your risk profile. Needless to say, you need to make the right choices and invest in funds that are suitable to your needs and time horizon. For example, if you intend to create wealth over the longer term, a significant part of your portfolio has to be invested in equity and equity-oriented funds. Similarly, if you invest aggressively into equity funds for a shorter time horizon, there would be a risk of losing a part of the capital. 

2) Consider inflation while setting long-term targets.
Long-term investment goals like retirement planning and children’s education require you to accumulate a large corpus. Besides, the cost of education and expenses during postretirement period will keep on increasing due to inflation. If you ignore this aspect and start building a corpus randomly, inevitably there would a huge gap in what you will be able to accumulate and what you would need for that specific objective. This would compel you to compromise on two of the most important goals of your life. Therefore, consider inflation while setting the target and start building the corpus by investing the amount accordingly. Remember, starting the process early and staying invested during the defined time horizon will help you benefit from the power of compounding. 

3) Keep emotions away from your investment process.
Investment success, on a sustained basis, requires you to keep your asset allocation intact. While you may be required to rebalance the portfolio over time, changing asset allocation abruptly can backfire. One of the main benefits of staying disciplined is that you keep emotions out of your investment process and keep your focus on your time horizon and investment goals. This helps you tackle the market volatility efficiently. In other words, if you allow emotions to dictate your investment decisions and make abrupt changes, your portfolio will suffer, thereby creating disappointment for you in the long run. 

4) Follow a disciplined investment process.
When you invest in equities, it requires a long-term commitment. Besides, investing in a disciplined manner through SIP not only helps you tackle volatility but also turn it to your advantage as you benefit from averaging. When you try to time the market, more often than not, you tend to go wrong and also there is a lack of discipline in your savings process. To create a corpus over time, investing in a disciplined manner is absolutely important as it allows you to benefit from the power of compounding and handle volatility efficiently. It also allows you to save regularly and ensures that savings gets priority over spending. 

5) Monitor the progress of your portfolio.
It’s important to monitor the performance of the portfolio to ensure that it remains on track to achieve your goals. While making abrupt changes can backfire, ignoring the performance for longer duration too can be harmful to your portfolio as it allows non-performing funds to bring the performance down. However, it’s important to put performance in perspective while monitoring the portfolio returns and consider relative performance vis-à-vis the benchmarks and the peer group.