The best way to generate optimum risk-adjusted returns from mutual funds is to build a diversified mutual fund portfolio consisting of multiple asset classes.
Mutual funds are a convenient way to invest your money. Even if you’re starting with small sums, you get the benefit of a professional fund manager who manages your money and decides on which stocks or bond to invest in for you. However, you as an investor should also follow some strategies to build more corpus by investing your monies into mutual funds.
Here are five strategies which you should follow to make more money by investing in mutual funds.
Strategy 1: Diversify your investment
The best way to generate optimum risk-adjusted returns from mutual funds is to build a diversified mutual fund portfolio consisting of multiple asset classes. Doing so also helps you maintain steady return. Manish Kothari – Director & head of mutual funds, Paisabazaar said that the asset allocation and fund selection has to be done on the basis of your financial goals, investment horizon and risk appetite. “However, while doing so, avoid investing in too many funds as it might be cumbersome to track their performances,” he cautioned.
Strategy 2: Purchase direct plans
Why give broker or agent a brokerage amount on your ongoing investment when you have an option to buy funds directly. You can easily purchase any of the schemes by visiting the desired AMC website or can make the investment through MF Utility website for direct buying. “Prefer direct plans of mutual funds over their regular plans as their lower expense ratio will translate into higher returns over the long term,” said Kothari.
Strategy 3: Opt for SIP mode
SIP or Systematic Investment Plan is an investment strategy which helps an investor ensuring them to do regular and disciplined investing. Through rupee-cost averaging, it eliminates the need for market timing and also, helps reap greater benefits from the power of compounding too. You can invest a very small amount as low as of Rs 500 on monthly basis, which makes the SIP’s strategy as one of the most attractive modes to pool your money in markets.
Strategy 4: Age-wise asset class investing
Make your investment in equity and debt funds as per your increasing age. So, whatever your current age is, you should minus it from 100 and invest the same percentage of your fund in equity assets. However, slight variation in percentage can be made as per one’s risk-taking capacity.
If you are a little aggressive investor than you can increase the equity concentration to a slightly higher level then needed. “The right way to invest is to split your investments between debt and equity funds. What percentage should you invest in each? A simple, yet the effective rule of thumb to follow is that you debt allocation should be your age minus 10,” said Kunal Bajaj is CEO & founder of Clearfunds.com.
Strategy 5: Periodic Review
Ensure that you taking a periodical review of your fund’s performance and also, you are rebalancing your portfolio according to the changes in your age, risk appetite and financial goals. Doing so, makes your investments remain active as per the market conditions which helps in generating a decent return on your overall portfolio throughout the investment tenure. Remain invested until you achieve your financial goal successfully on time.