How to Diversify your Mutual Fund Portfolio
Being a mutual fund investor, you should have a diversified portfolio of funds just like securities to reduce risk and reap more returns in any market condition. The diversification doesn’t only mean investing in various scheme to minimise risk. If you aim to diversify your fund portfolio properly then you are expected to review some factors like benchmarking, MF categories etc. Diversifying is nothing but investing in such a manner that negative sentiments in any one of the fund or security should not hamper the whole investment and ruin your returns.
Here are some aspects which one must consider while diversifying your mutual fund portfolio
Allocation of investment
Investor should allocate their investment in various asset classes wisely. That is the investment should be well-diversified in equity as well as debt funds to secure the returns. For this one should look into hybrid and balanced funds too for tax benefits. So, allocation of investment as per the personal investment goal is one of the most important factor for the investor while diversifying his portfolio.
Review the stockholding
To enrich the returns from the various funds, investors need to hold unique funds with unique investment style. Investor should review the stockholding of the funds before investing to avoid stock overlapping. Having funds with similar type of stockholding is not beneficial, your fund's holdings should have minimum stock overlap. To secure and maximise the returns its necessary for an investor to review stockholding and choose funds with minimum correlation and portfolio overlap.
Choose funds of different AMC’s
Every Asset Management Company (AMC) designs their own schemes with different investment objective. Even though the theme and stockholding may be similar for different AMC’s, but the investment objective and strategies may differ. So investors are advised to consider the same and expected to choose funds from different AMC’s as this will also aid the returns and reduce the risk involved.
Index Analysis
Every scheme has its own investment strategy and follows own indices like BSE-Mid cap, BSE-small cap etc. This means the stocks in the portfolio of that fund belongs to companies listed under that specific index. So, investor need to understand risk associated with the index. Moreover, investors are advised to stay invested in funds following different indices which will reduces the risk of market volatility.