“Mutual Funds Sahi Hai” – a 30 second ad would have prompted you to invest in Mutual Fund. Here, we present you a 3 minute read – which will give valuable insight on how a one-time investment of Rs. 10 Lacs, if invested properly, will give you extra Rs. 3 crore.
In this article, we have tried to explain you 7 important pointers which shall enable you to make the best out of your Mutual Fund (MF) Investment portfolio. Here’s how:
- Balanced Diversification: Depending upon your risk appetite, it is advised that one should restrict oneself to invest in max 2-3 Mutual Funds across each category (be it large-cap, mid-cap, small-cap, multi-cap, etc.) – else, it shall become difficult to monitor and you shall not be able to take corrective action when needed. It is pertinent to note that each such MF scheme already has shares of multiple companies – hence, no point in having too much diversification.
- Dynamic SIP: Despite knowing all about Systematic Investment Plan (SIP), many a times investor behaves irrationally and reduce / stop their SIP investment when market is falling. This is one of the biggest mistake which he/she makes. On the contrary, with every fall – you should rather increase your ticket size of SIP so that you buy more at lesser unit cost. And the opposite needs to be done when market keeps rising. So, the rule is – follow the concept of Step-Up SIP and Step-Down SIP, as & when the market keeps falling & rising respectively.
- Spread out SIP: Fund houses allow the investor to have their SIP debited on their preferred date (like 1st, 5th, 15th, or 20th day of a month). So, if you have multiple SIPs across 3-4 mutual funds, it would be better to stagger the investment over the entire month, instead of giving the mandate for all SIPs on a single day. You can thus reduce the risk of volatility impacting your portfolio.
- Concept of STP: Systematic Transfer Plan (STP) is like a sister of SIP – which few of you may be aware of. Despite making SIP investment regularly, it has been seen that people keep very high money in savings a/c for the entire month (from which SIP is done). This money merely fetches an average pre-tax return of 3.5% p.a. ~ which is quite poor. Instead, the surplus money in savings can easily be parked in Liquid Funds (safe like SB A/c) – from where SIP can be made. Such amount parked in liquid funds can easily generate about 2% extra return over savings rate.
- Right way of making ELSS Investment: It has been observed that people make haste decision at year end by investing in some tax saving product like ELSS. Consequently, they may buy when the markets are high and thus their return over longer time period gets compromised. Instead, if they are sure of making such investment – then, they should either average out their investment each month (by way of SIP) OR they make lumpsum when markets are low. This strategy can itself improve your return by at least 2-3% p.a.
- Proper Tracking: It has been seen that many a times people have invested their hard earned money into MF (through various channels) but frankly they do not know how much they have invested or what is the present market value of these investments. Apart from getting the updated report from your MF advisor, a person may voluntarily generate their consolidated MF portfolio statement from the portal of CAMS, Karvy, etc. by sharing their PAN & email id.\
- Timely review & clean-up of Portfolio: Review and cleaning the portfolio at regular intervals goes a long way in making it more smart, simple and manageable. A quarterly disciplined review is indeed very crucial to take timely correction, whenever needed. But the question is how do we review? A simple guide is to look into these aspects when reviewing your MF portfolio, like
-
- Improvement / Deteriorating in external rating of the Funds
- Compare returns of the scheme with respective benchmark
- Compare performance with similar funds
- Rather than merely seeing returns only, it is important to see the returns generated per unit of risk undertaken.
- Keep tab on changes in the Fund Manager – this has a significant bearing on the performance & style of functioning of the fund.
There is information overload everywhere which leads to selecting wrong choices, at most times. It’s always advisable to consult a qualified, experienced & trustworthy financial planner who can give you a more holistic advice – depending upon your risk profile.
It has been observed that a trustworthy capable Financial Advisor can facilitate you in making higher return (net of all costs), than what you yourself would have otherwise made.
Example – If you just invest Rs.10 Lacs (one time) and assuming your Trusted Investment Advisor enables you to make extra income every year by a mere x%, then you would be surprised to know how much extra income can you make over long term (say 30 years). The following chart would be an eye opener:
A synopsis of the extra return generated under various scenario is tabulated hereunder for easy understanding:
| Rs. Lacs | If Extra Return % p.a. is | ||
| Time (years) | 2% | 3% | 4% |
| 20 | 29 | 48 | 70 |
| 30 | 125 | 217 | 335 |
Thus, this clearly highlights what a powerful impact a trustworthy and capable Financial Advisor can have on your Mutual Fund portfolio.
Hope this 3 minute read gave you valuable insights on how you can improve upon wealth creation strategy.
Thank you!
Enter your Details for Free Portfolio Health Checkup
One Comment
NA