Posted On Friday, May 10, 2013
Have you ever seen an infant crawling his way to get something, on a spur of a moment it lifts itself and tries to walk. While the kid takes the charge to stand on his own feet and a mere walking could look like an art form, it is also important to notice the child’s efforts to not give up and try till it succeeds.
Likewise, its time to look at investments the same way. If you have made some mistakes in the past while investing, then take it as a learning step and try not to commit the same in future while investing.
Investing is a discipline and when it comes to park your money in mutual funds its all about patience and synchronizing your future goals with respect to the objective of the fund. Mutual Funds are a collective investment vehicle that pools money from many investors to purchase securities. In short, a simple way for investors to get into the equity market. However this also requires some research and knowledge. To build a mutual fund portfolio, you must go for a simple combination of mutual funds that work well for your needs and will help in meeting your financial goals.
After you have built your portfolio of mutual funds, you need to know how to manage it. Common queries which comes to mind during managing a portfolio are, you think that you have invested in too many mutual fund schemes? Will it benefit you and your family in the long term? How many mutual fund schemes should you have in your portfolio to get ideal returns? Which are the best mutual funds that you can still invest your money in? Which mutual funds can you knock out from your portfolio without affecting your returns?
The secret of managing a portfolio of mutual funds is deciding on a strategy that is used to manage a portfolio of mutual funds.
Following are some strategies that you could keep in mind for managing your mutual fund:
Leave it alone strategy:
This is a common strategy with mutual fund portfolios since they are professionally managed. You simply park your money in a mutual fund scheme and the Fund Manager takes its care with the help of his financial expertise. You don't have to track your portfolio every time, as it could cost you your valuable time. There are also chances of you not doing justice to your investments due to lack of sufficient knowledge.
It is a strategy where an investor buys securities, gives it an ample amount of time to grow and holds it until the goals are achieved for which the investments has been done.
Build the right portfolio:
Adding new funds into your portfolio should be done with great research as it is like adding a new furniture to your home, it should fit in and fit well, else it would spoil the setting; similarly oddly chosen funds could drag down the overall portfolio. It is recommended that one should add funds which are complementary to the portfolio and investment goals. While selecting a fund, you need to look at various parameters like objective of the fund in comparison to your investment objective, performance of the fund against it’s benchmark, investing style, fund manager’s expertise etc., apart from the other technical aspects like expense ratio, sharpe ratio, beta, alpha etc
Stay in synchronised with your risk profile:
Every time a new fund is added to the portfolio or there is re-alignment in asset allocation, it becomes important to stay in synchronised with the risk profile. Don’t under or overestimate your risk profile. The risk appetite changes over time, so you should constantly evaluate and ensure that the portfolio is aligned accordingly. For eg. a person during his mid- 20’s to early 30’s may have higher exposure towards equity given his age, responsibilities etc. This may undergo a slight change after responsibilities kick-in; as one approaches retirement, clearly the ability to take risks diminishes sharply and hence one may have a higher allocation towards debt instruments during such times.
Remember to Diversify:
Your focus should be on diversifying your portfolio to balance it out against the market volatility The purpose of portfolio diversification is risk management. It mixes a wide variety of investments within a portfolio across different asset classes. The rationale behind this technique is that a portfolio of different kinds of investments in different asset classes may, on average, yield higher returns and pose a lower risk than investments only in a single asset class.
Managing could give that extra edge to your mutual fund portfolio and take you a long way in enhancing returns and achieving investment objectives. The key to portfolio management is to have a discipline that you adhere to. The most successful money managers in the world are successful because they have a discipline to manage money. Therefore, always remember that whether you are a newcomer or a seasoned investor, with just small basic practices you’ll be able to manage your portfolio and take care of your hard earned money prudently.
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