How should you examine your mutual fund portfolio to maximise returns?


Over the last 10 years, mutual funds have gained great acceptance by many investors. However, a lack of basic understanding regarding mutual funds and misleading financial advice often makes investors end up with a cluttered investment portfolio containing duplicate investments, under performing funds, and a sub-optimal asset mix. Here’s a list of parameters to examine and factor in to maximise your mutual fund returns.

mutual fund

Diversify your investments

The returns yielded by different mutual fund schemes vary drastically based on fund managers’ investment decisions, the asset categories they have invested in, the kind of fund categories the scheme belongs to and existing market and economic conditions. For instance, asset classes like equity and gold hold negative correlations. This means, gold funds generally perform well during geopolitical or economic un certainties while equity funds generally may falter during such scenarios.

Likewise, short-term debt mutual funds perform exceedingly well than long-term debt mutual funds during increasing interest regime scenarios and vice versa. Thus, devising a well-implemented investment portfolio diversification via optimum exposure to different funds and within asset classes would assist in generating risk-adjusted returns based on your time horizon and risk appetite.

However, you must avoid falling into the trap of purchasing multiple funds or over-diversification with the same investment strategies and styles. A lot of funds within the portfolio may make it tough for you to track the performance of your funds and can also negatively affect your entire portfolio returns.

Opt for the SIP route of investment

An SIP allows you to invest a predefined amount at periodic intervals, say, monthly, quarterly, six-monthly, etc. in mutual funds. As the SIP amount gets automatically deducted from your account on a predefined date, it ensures periodic investment as well as financial discipline. Additionally, as the minimum investment amount in a mutual fund is as low as Rs 500, it enables you to make the most out of equity investments even with your limited investible surplus.

Automated and regular investments even ensure rupee cost averaging by allowing you to purchase a higher number of units at a lower net asset value during bearish phases. This benefit in averaging out the investment cost and removes the requirement to monitor the market as well as time your investment.

Top up your SIP during bearish markets

Bearish markets or steep market phases endow an opportunity for long-term wealth creation. This permits youto purchase quality equities at an attractive valuation. Hence, you as an equity fund investor must not only continue with your SIP during such market phases to average out your investment expense but must even top up your SIP with investible funds in a staggered way to further average out your investment cost. Doing this would allow you to form a bigger corpus with lower contribution and reach your financial goal faster.

Periodically assess the performance of your fund

Periodic examination of your mutual fund investment is as crucial as investing regularly in mutual funds. This permits you to keep track of your funds’ performance in distinct market phases. Note that even best-performing funds with great returns in the past may become laggards in the future, over a long-term period. Thus, you must make sure to compare the returns of the funds over the last 1-year period with its benchmark indices and peer funds once every year. If your prevailing fund investment continuously under performs for nearly 3 years, consider liquidating the same to invest in better-performing funds.

Ending note

A mutual fund is a preferred investment choice as it provides inflation-beating returns and outperforms fixed-income assets by a wide margin over the long run. However, in case you are a first-time investor, you may be confused or hesitant to invest in such market-linked instruments. With the above-mentioned tips, you can make the most out of your investment in mutual funds. In case of any query, you may seek help from experienced financial advisors.

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