If there is one investment instrument that can help you meet your short-term and long-term financial needs on your current income, it’s mutual funds. However, the power of compounding is only fully released when you do your part of managing your portfolio wisely. Successful investors start right, stay their course, and end well – with calculated risks.
If you want to be one of them, here are some top fund management tips that will truly step up your investment game plan.
1. Start out right with portfolio diversification
Equity funds are significantly affected by market ups and downs, whereas debt funds are stable and offer guaranteed returns. Moreover, gold funds perform their best during market uncertainties. Drooping towards any single asset class can put unnecessary risk on your capital. For instance, only investing in equity funds can lead to capital loss, whereas a portfolio of solely debt funds can deter you from leveraging market opportunities.
A well-balanced, diversified portfolio mapped to your risk profile is the way to go.
Additional Read: What Are the Average Returns on Mutual Funds?
2. If on the SIP route, top it up during market corrections
During bearish markets or steep market corrections such as the one triggered by the COVID-19 pandemic, many investors panic and redeem their SIPs in fear of further dips or losses. However, bearish market phases offer an excellent opportunity to fund managers who purchase quality equity mutual funds at lower costs.
As a mutual fund investor, you can also leverage this opportunity by topping your SIP with lumpsum in a staggered manner. This way, you will further average your investment cost, thereby creating a larger corpus with smaller contributions before maturity.
3. Avoid stagnancy by rebalancing your portfolio periodically
Portfolio rebalancing is the process of restoring the portfolio to its target asset allocation. Your portfolio’s fund mix will get disturbed over time due to market changes. You should review it periodically to check its performance against peer funds and market benchmarks. Plus, if your investment strategies, goals, or risk tolerance change over time, portfolio rebalancing becomes imperative. It gives you better risk control and ensures that your portfolio’s performance is not dependent upon a single asset class or fund type.
4. Adopt a passive investment strategy with index funds
Index funds deploy a passive investment strategy by investing in stocks of a particular index. For instance, a Nifty index fund will only invest in the 50 stocks that are part of the index. The goal of such a fund is to generate returns as close as possible to its underlying index. It’s a smart move to stay invested in these funds over the long term – since their return profile reflects economic growth. Since index funds demand less active trading and portfolio management, investors enjoy low expense ratios.
Additional Read: Importance of Mutual Funds
Need a fund management partner that can help you make an informed choice? Download Tata Capital’s Moneyfy app! You can find top picks every day, get personalised fund recommendations, browse through detailed features of each fund, and more. Compare between different options before you build or rebalance your portfolio. Align it well with your personal investment requirements and secure high returns. Smart MF management is just a click away!