We are at a stage where we’ve spoken so much about Mutual funds. It’s a given – we do need to talk about Mutual funds a lot because of their evolution in the last few years. What’s left to discuss about Mutual funds is definitely how to construct your mutual fund portfolio. Building a mutual fund portfolio isn’t just picking random funds and putting them in your backpack. It’s much more complex than that. I’ll tell you why in a while. But before that, let us talk about the basics.
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What is a Mutual Fund Portfolio?
We all work hard to earn money and provide for ourselves and our families. We also try out best at saving some of this money for a rainy day. But, savings put together with inflation, this hard-earned money is eaten away. So, to make sure this doesn’t happen, investments are the best choice. They don’t easily devalue, do they?
All of this said, choosing the right investments is another challenge. Where would you like to invest, real estate, gold, Mutual funds, or the traditional FD? The options are endless. While it’s a long list to write, just imagine how confusing it would be to choose one for yourself. Well, if it’s Mutual funds, the overload of funds to select from doesn’t make things any easier. And this is why I told you it would be complex. But, a mutual fund portfolio makes things better and more profitable.
Coming back to the main point. A mutual fund portfolio is a collection of investments that are made in different types of Mutual funds. A portfolio needs to be in sync with your financial goals. It gives your investment in mutual funds a comprehensive view and also allows you to monitor, manage, and much more.
Considerations Before Diving into a Comprehensive Mutual Fund Portfolio
Do you Have Coverage for an Emergency?
This clearly means an emergency corpus. We all have sudden surprises down the road. It can be bad or good. Just in case you’d need some financial help for that uncertain incident, your emergency fund will get you through. It can be fixing something in your home or even a medical emergency. You need to know, these uncertain circumstances can take any form, shape, and size, and you would have to pay for it.
While diversifying your mutual funds’ portfolio is essential, it’s also essential to always have an emergency fund that has got your back. Investing in various mutual funds to balance your portfolio is growing, but not at the cost of not having an emergency fund at your back. So, make sure you have an emergency fund then take up the job of building a mutual fund portfolio.
Do you Have Coverage for Risks?
Now, we are all subject to various kinds of risks in our lives, or should we say throughout our lives. When it comes to a good mutual fund portfolio, it does mean spreading out your risks. For instance, in your mutual fund portfolio, you can have the best aggressive growth mutual funds, debt funds, and balanced mutual funds. This means you have funds with high risk – high returns, and also funds that will serve you with a steady income and lower risks. It means you are covered in terms of risk. Even when you lose money on your high-risk funds, you’ll still have money on the low-risk funds.
Now, being safeguarded just on mutual funds is not the end. You also need to be safeguarded on some other things, such as hospitalization, loss, and much more. If your plan is to buy investments as a substitute for insurance plans, that’s never a good idea.
There are certain ground rules when it comes to building your mutual fund portfolio, and also on how to build it. You can design for yourself a portfolio that works together to reach your financial goals.
Steps to Build a Perfect Mutual Fund Portfolio
1. Get yourself a Blueprint
What would you need if you wanted to build yourself a home? It begins at a Blueprint, right? The same can be followed for your portfolio(not literally). A Blueprint gives the constructor a structure, a shape. And specific features just like how your portfolio needs specifications. Like said, it’s not a random picking play.
First – think of why you are investing? What is this money for? Retirement? Education? A new home? It can be anything, but you need to know what’s that final destination. When you know your goal, you can easily figure out how long you’ll be investing, how much you can invest, how much you want at the end of the investment, and much more. Your plan tells you how much you can risk and how much you need to invest in order to serve the ultimate purpose.
Let’s say you have a close goal, like getting a bike. You do not want to take this in the long term. But if it’s retirement, you’d have to look decades into the future. The more time you have, the more you can invest in equity funds.
2. Make up your Mind on Asset Allocation
An expert would always construct his portfolio based on asset allocation. Determining your asset allocation is crucial to making your investment. This means, choose between hybrid, debt, and equity funds. Or you can also determine how much in the type of fund.
3. What do you Already Own?
Name all of your mutual funds and how they performed the week before. If they did well, good for you. But, can you say why they work together? Which ones are your major funds? Are they diversified? Do they overlap? It is not a bad idea to note them all down along with their value. If it’s not balanced out, you need to get it down. Make sure you have the perfect asset mix, style box, and sector weight-bearing.
4. Put them All Together
Now, you know what you have. With that at hand, find out if they match your Blueprint. Start off by checking your asset allocation. This is also the time you need to score out the redundant funds.
It all starts with your goals. You’ve got your goals figured out, then structuring the perfect portfolio wouldn’t be as complex. Your investment withholds your hard-earned money, and it must be nothing short of perfectly proficient and well suited for you and your financial goals.