The different asset classes available nowadays have made it difficult for some investors to decide which one to invest in based on their financial goals. The risk of keeping all the eggs in one basket stays. Therefore, creating a diverse portfolio becomes extremely helpful. As an investor, you have different financial goals that need to be fulfilled within different time periods. A portfolio helps in managing all your investments in one place.
A successful investment is a combination of the investor’s financial goals, risk tolerance, and investment horizon. But the question that arises here is how to build a mutual fund portfolio. The following steps can help you in creating a mutual fund portfolio that suits you better:
- Know your investment profile
An investment profile is based on three things – the purpose of investing, risk tolerance, and investment horizon. Your financial goals could be buying a house, retirement plan, your child’s education, or as simple as getting a good amount of return over the next few years. In the same way, every investment carries a certain amount of risk. Your risk tolerance dictates which investment you could go for. Investment horizon refers to the time for which you are willing to invest. It solely depends on your financial goals.
- Deciding on the correct category of mutual fund
Mutual funds are further divided into different categories based on a number of factors. All funds vary in risk levels. As an investor, these aspects need to be taken into consideration.
- Analysis of your funds
After thoroughly researching which mutual fund could work for you, the next thing to look into is all the past data regarding the performance of that particular mutual fund scheme. However, an important thing to keep in mind is that your returns will be based on the future performance of the fund. The selected fund can be analysed based on three aspects – risk-adjusted returns, performance of funds across various market cycles, and the expense ratio.
- Regular monitoring
The process does not end with the selection of funds. You need to constantly monitor the performance of your investment to achieve your financial goals. A portfolio helps in the monitoring with ease. If you find any investments underperforming, you can replace them.
All these steps can help in building a mutual fund portfolio that is best suited to your financial profile. There is no one-fit for all portfolio as the requirements of all are different for different people. Exploring your options through a financial advisor can help you understand the kind of investor profile you have and in what time frame you need to create the required quantum of mutual funds.
Reach out to a financial advisor today to assess what kind of investor are you, to get an assessment of your risk appetite, and receive bespoke investment planning advice to reach your dreams.