Mutual Funds have become a simple and effective medium of creating wealth. This is the reason why Mutual Funds have become a major part of the retail investors’ portfolio. However, if you invest in mutual funds, getting best out of it is challenge, especially since there are so many MF schemes from various asset management companies. Here are few tips to improve portfolio performance:
As a retail investor, one should have a strategy for investment. It is important to pay attention towards the right exposure to different market segments. Your mutual funds’ selection should be such as you have exposure to large cap, mid-cap and small cap stocks. The returns of large cap oriented mutual funds are lower than mid and small cap funds, however they are relatively safer as well. Before investing in a mutual fund, you should understand the portfolio of the mutual fund. If you invest in mutual fund through a financial advisor or broker, you can check it with him. You should also check the scheme related documents.
It is important for investors to check the proper mix as it has a role to play not only in the returns he can expect from the portfolio but also the level of risk that he may have to encounter. The large cap oriented MFs pay a lower return as compared to mid and small cap funds but on the other hand, the risk associated is also lower.
There can’t be a single formula for the correct combination. It varies from one individual to other and depends on the risk profile, investment objective & the time horizon.
Many retail investors consider only the returns and the performance of the mutual fund. However, only the returns should not be the sole criteria for choosing a mutual fund. It is important to ensure that the fund house has the expertise to get most out of the different segments of the markets. You should also check the expense ratio of the fund (the percentage of money fund company charges for fund management etc).
Time diversification means remaining invested over different market cycles. This is particularly important for equity fund investors. It helps in mitigating the risk that one may encounter during bad time in the economic cycle. It has high impact on investments that have a high degree of volatility such as equity oriented funds. Longer time periods smooth those fluctuations of the market. It also allows investors to take on greater risks, with a greater potential to earn better returns. This is because some of these risks can be reduced by investing across different market cycles.
Diversify your Portfolio
As a retail investor, one should have a strategy for investment. It is important to pay attention towards the right exposure to different market segments. Your mutual funds’ selection should be such as you have exposure to large cap, mid-cap and small cap stocks. The returns of large cap oriented mutual funds are lower than mid and small cap funds, however they are relatively safer as well. Before investing in a mutual fund, you should understand the portfolio of the mutual fund. If you invest in mutual fund through a financial advisor or broker, you can check it with him. You should also check the scheme related documents.
It is important for investors to check the proper mix as it has a role to play not only in the returns he can expect from the portfolio but also the level of risk that he may have to encounter. The large cap oriented MFs pay a lower return as compared to mid and small cap funds but on the other hand, the risk associated is also lower.
There can’t be a single formula for the correct combination. It varies from one individual to other and depends on the risk profile, investment objective & the time horizon.
Looking Beyond Returns
Many retail investors consider only the returns and the performance of the mutual fund. However, only the returns should not be the sole criteria for choosing a mutual fund. It is important to ensure that the fund house has the expertise to get most out of the different segments of the markets. You should also check the expense ratio of the fund (the percentage of money fund company charges for fund management etc).
Time Diversification
Time diversification means remaining invested over different market cycles. This is particularly important for equity fund investors. It helps in mitigating the risk that one may encounter during bad time in the economic cycle. It has high impact on investments that have a high degree of volatility such as equity oriented funds. Longer time periods smooth those fluctuations of the market. It also allows investors to take on greater risks, with a greater potential to earn better returns. This is because some of these risks can be reduced by investing across different market cycles.
