The Buyt Desk
Mutual Funds are gaining popularity as one of the most sought after investments for earning good returns. Rising inflation and falling interest rate have taken away the sheen from investments like bank fixed deposits and small saving schemes. Apart from the inflation-beating return, the ease of investment in mutual funds is also a big draw. Investors find it very easy to invest in mutual funds because-
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It gives the investor the freedom to start with any amount, as low as Rs. 500
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Easy to create a diverse portfolio of assets through MF. You can invest in equity, debt, gold or real estate MFs.
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You can very easily divide your investment into automated monthly investments via a systematic investment plan(SIP).
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No requirement for a DMAT account.
Introduction To Mutual Fund
We have already told you in our earlier piece about what mutual funds are and how do they work? Attaching a few links for reference-
https://www.thebuyt.com/types-
https://www.thebuyt.com/how-
Let’s now understand how to build a mutual fund portfolio.
How To Build Mutual Fund Portfolio
Creating a portfolio in mutual fund investment is as crucial as opening DMAT for investing in the stock market. A good portfolio helps in meeting the investment goal. The meaning of portfolio in investment means diversifying the investment products. Present-day investors prefer to create a portfolio instead of investing in one fund. Experts also recommend the same in place of investing all amounts in one fund when options are there. But creating a good portfolio requires calculated planning. One can do this by considering the following points.
Check Requirements And Expectations
Before finalizing any fund, the investor must understand his requirements and expectations with the investment. The mutual fund has several funds having a targeted purpose. Some funds provide attractive returns but come with higher risk, while certain funds coming with moderate risk come with a moderate return. One can understand their requirements and expectations by answering three questions.
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The investment goal – Understand why you are making this investment?
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Time Horizon – Check out the investment time. With a lofty time horizon, which is about 25-30 years, one can reap the benefit of compounding. For a short time gain, one has to take some risk.
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Risk Tolerance -The risk-taking appetite of an investor determines which fund they should opt for.
Select A Fund
After the successful evaluation of investment requirements and expectations comes the fund selection. It is easier than understanding requirements and expectations with the fund.
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Check Risk And Return – The asset management companies provide a different return on the same category of funds. Thus, the trick is to select a product after a thorough comparison.
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Expense Ratio – The expense ratio is the amount an investor incurs to manage that fund. Check a fund that has a lower expense ratio and offers higher returns. In the long run, the expense ratio seems minor but can create a significant impact on the return because of the compounding effect.
Select The Strategy Of Investment
A mutual fund allows you to invest in two ways, lumpsum and SIP.
The lumpsum investment means investing money in one attempt. This type of investment is a tax-saving tool.SIP is the systematic investment plan. This option allows investors to regularly invest a fixed amount in the fund for a period of time. There are a few mutual fund companies offering a micro SIP of just Rs 100 as well but the majority of funds have Rs 500 as their minimum investment amount.
If you are interested in understanding the difference between SIP and lump sum investment one of our earlier articles will be helpful. Sharing the link here –
https://www.thebuyt.com/which-
Note:
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A rewarding mutual fund portfolio has a minimum of 3-4 different funds. It will diversify your portfolio.
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Keep the duration of investment longer to reap the benefit of compounding.
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Try taking the help of an expert if you are new.
