Mutual funds are a popular choice for many investors due to their simplicity and potential for higher returns compared to individual securities. A mutual fund is an
investment vehicle that pools together money from multiple investors. By investing in a mutual fund, investors can benefit from the expertise of professional money managers.
Advantages of investing in mutual funds
Professional management:
Mutual funds are managed by professional money managers who have the expertise and resources to do any extensive research on stocks/instruments and select investments for the fund.
Diversification :
Mutual funds offer diversification by investing in a range of stocks, bonds or other securities. This can help to spread risk and potentially increase returns.
Liquidity:
Mutual funds can be bought and sold daily, allowing you to easily access your money when needed.
Convenience:
Mutual funds are a simple investment option, as they can be purchased through a broker or financial advisor, or digital platforms.
[Also Read: Know the difference between open-ended and close-ended mutual funds]
Steps to follow for building a strong mutual fund portfolio
Set your investment goals:
Before you start investing in mutual funds, it is important to have a clear understanding of your investment goals. Do you want to save for retirement, buy a home, or build an emergency fund? Having specific
goals will help you determine the right mix of mutual funds for your portfolio.
Understand your risk tolerance:
Different mutual funds come with different levels of risk. If you're risk-averse, you might want to focus on mutual funds that invest in less volatile assets such as bonds and cash equivalents. If you're
willing to take on more risk in pursuit of high returns, you can consider mutual funds that invest in stocks or more volatile assets.
Diversify your portfolio:
Diversification is key to minimizing risk in your fund portfolio. Rather than investing all your money in a single fund, consider spreading your investments across a range of mutual funds that invest in different
asset classes, sectors and geographic regions. This will reduce the impact of any one investment on your overall portfolio.
Choose mutual funds with a good track record:
While past performance is no guarantee of future results, mutual funds with a history of strong returns can be a good choice for your portfolio. Look for mutual funds that have consistently
outperformed their benchmarks over the long term.
Consider the fees:
Mutual funds charge fees to cover the cost of managing the fund. These fees can eat into your returns, so it's important to choose mutual funds with low expense ratios. Look for funds with expense ratios below the average
for their category.
Monitor and rebalance your portfolio:
As your investment goals and risk tolerance change over time, it may be necessary to adjust your mutual fund portfolio. Monitor your investments regularly and consider rebalancing your portfolio to
ensure it stays aligned with your investment goals and risk tolerance.
By following these steps, you can build a strong mutual fund portfolio that is tailored to your specific investment goals and risk tolerance. Keep in mind that investing in mutual funds carries inherent risks. Consult a financial advisor before
making any investment decisions.
Conclusion
Investing in mutual funds can be a smart choice. Consider seeking the advice of a financial institution or mutual fund advisory service such as those offered by Axis Bank. These services can help you select the mutual funds that are best suited
to your investment goals and risk tolerance. Carefully consider your investment goals and risk tolerance before selecting mutual funds for your portfolio.
As with any investment, there are inherent risks involved, and it is essential to do your research before making any investment decisions. By following a thoughtful and disciplined approach to investing in mutual funds, you can potentially achieve
your financial goals and build a strong mutual fund portfolio.
Similarly, an SIP or a loan against securities is also an option for you should you need them.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
Mutual Fund investments are subject to market risk, read all scheme related documents carefully. Axis Bank Ltd is acting as an AMFI registered MF Distributor (ARN code: ARN-0019). Purchase of Mutual Funds by Axis Bank’s customer is purely voluntary and not linked to availment of any other facility from the Bank. T&C apply.
