Make A Mark In Your Portfolio With Right Dose Of MF

Slowly, but steadily mutual funds have begun to play a key role in the portfolios of millions of investors in India. However, factors such as lack of knowledge and wrong perceptions about what mutual funds offer and their potential as well as preference for traditional investment options like fixed deposit, small savings schemes and bonds continue to keep a large section of investors away from this wonderful investment instrument. No wonder, despite mutual funds being a versatile investment instrument that has the potential to allow investors with varied risk profile, time horizon and needs to achieve their investment objectives, the retail participation remains at an alarmingly low level.    

It is heartening to see mutual fund industry and distributors, advisors making concerted efforts to increase retail participation. These efforts are bearing fruits as retail participation in mutual funds is increasing. Moreover, the fact that an increasing number of investors are adopting a disciplined approach of investing through a Systematic Investment Plan (SIP) testifies that mutual funds are being propagated in the right manner.

Needless to say, these efforts will have to be continued relentlessly to ensure that mutual funds earn their rightful place in investment universe of different segments of investing public. It is equally important for those involved in this process to position mutual funds as an investment vehicle that not only allows investors to invest in different asset classes but also has the potential to offer higher as well as tax efficient returns.

Of course, if investors themselves make some efforts to understand their own investments needs and what suits their requirement, they will appreciate what an advisor does to ensure that their portfolios remain on track to achieve their investment goals.  A better understanding between an investor and his advisor can go a long way in achieving investment success on a consistent basis.

Here are a few pointers for those who are looking to make mutual funds an integral part of their portfolios:

Follow an asset allocation approach

It is quite common to see investors making random decisions while investing in investing in mutual funds. The funds are often chosen to benefit from the current market mood. An approach like this either makes a portfolio quite aggressive or conservative based on which asset class is doing well at the time of making investment. Remember, the right way to begin investing is by ascertaining how much needs to be invested in different asset classes like debt, equity and gold.

This can be done by following a goal based investment approach that would require you to define your goals, time horizon and set a target for each of the goals. While equity funds can be an ideal choice for a long-term goal, a medium term goal can be achieved thru a balanced funds investing in a mix of equity and debt. Similarly, debt funds can be considered for short and medium term goals. This approach will not only help in controlling your urge of making abrupt changes in the portfolio but also help you benefit from the true potential of each of the asset classes.

The next step should be to choose the right investment option to get the best from each of these asset classes. An advisor can play a key role in ensuring that this process is followed at the start of your investment process and continued through your defined time horizon.

If you choose a quality fund, your investments are likely to appreciate steadily over time, overcoming most temporary setbacks. Besides, your portfolio must always be aligned with your risk profile by ensuring the right balance in terms of exposure to different market segments. For example, your equity fund portfolio must have an appropriate exposure to segments like large cap, mid-cap and small cap. 

Of course, despite taking all precautions you may still have to face erratic performance from time to time. However, if the fund falls in line with its benchmark index as well as its peer group, it should not be much cause for concern. Remember, a good quality portfolio always makes a comeback.

Hemant Rustagi