How to build your mutual fund scheme portfolio
The five model fund portfolios are not customised to individual needs. Some investors may be holding different schemes and earned very good returns. Others may have different views on the mutual funds we have selected.
Here are basic things to keep in mind when constructing a mutual fund portfolio:
Asset allocation desired by investor
This is critical because it determines the risk profile of the investor. The portfolio should take on more risk than the investor wants. As we said earlier, there is no point in earning high returns if it gives you sleepless nights.
Keep goals in mind
The portfolio should be designed in a way that it aligns with the goals of the investor. If the goal is just 1-2 years away, even an aggressive investor should go for a 100% debt oriented portfolio.
On the other hand, the choice of funds will be very different when saving for a long-term goal such as retirement. Like Wealth Secure, even a conservative investor will be advised to put at least 20-25% in equities. A pure debt portfolio will not be able to beat inflation.
Consistency of returns
The funds chosen should have a sound track record. Don’t go by short-term performance alone. Go for a longer term track record. Also, look at the risk parameters of the fund.
Number of funds
I have seen people holding close to 15-20 mutual funds. One even had some 40 funds in his portfolio. There is no need to have so many funds. Just 5-6 schemes can give you all the diversification you need.
Taxation and loads
The taxation of the investment should also be kept in mind when designing the portfolio. Mutual funds enjoy very favourable tax rules, but some fund categories such as Fund of Funds suffer from discriminatory treatment. Avoid these unlucky categories. Also check the exit loads of the funds in your portfolio. Some funds can levy very high exit loads, which eat into the returns.
Happy Investing
The five model fund portfolios are not customised to individual needs. Some investors may be holding different schemes and earned very good returns. Others may have different views on the mutual funds we have selected.
Here are basic things to keep in mind when constructing a mutual fund portfolio:
Asset allocation desired by investor
This is critical because it determines the risk profile of the investor. The portfolio should take on more risk than the investor wants. As we said earlier, there is no point in earning high returns if it gives you sleepless nights.
Keep goals in mind
The portfolio should be designed in a way that it aligns with the goals of the investor. If the goal is just 1-2 years away, even an aggressive investor should go for a 100% debt oriented portfolio.
On the other hand, the choice of funds will be very different when saving for a long-term goal such as retirement. Like Wealth Secure, even a conservative investor will be advised to put at least 20-25% in equities. A pure debt portfolio will not be able to beat inflation.
Consistency of returns
The funds chosen should have a sound track record. Don’t go by short-term performance alone. Go for a longer term track record. Also, look at the risk parameters of the fund.
Number of funds
I have seen people holding close to 15-20 mutual funds. One even had some 40 funds in his portfolio. There is no need to have so many funds. Just 5-6 schemes can give you all the diversification you need.
Taxation and loads
The taxation of the investment should also be kept in mind when designing the portfolio. Mutual funds enjoy very favourable tax rules, but some fund categories such as Fund of Funds suffer from discriminatory treatment. Avoid these unlucky categories. Also check the exit loads of the funds in your portfolio. Some funds can levy very high exit loads, which eat into the returns.
Happy Investing
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