A portfolio refers to the pooling of all the assets of a person which have financial worth like stocks, bonds and cash equivalents along with the mutual funds, closed funds etc. The portfolios are generally managed by financial professionals. The portfolio should be built in such a way that it handles risk in the most effective way. Different fund investments can be considered to be the building blocks for an overall portfolio.
A GUIDE TO BUILD A BENEFICIAL MUTUAL FUND PORTFOLIO
The following is a step by step approach to build the best money making portfolio:
- CLEAR CUT GOALS
This is the primary factor that needs to be taken care of on the first hand. Before making any investments, a person should have pre set goals and objectives in his mind. These financial needs can help to determine the tenure of the investments. There are different mutual funds available in the market for different tenures. A step by step transformation of the goals into time periods can help in choosing the most beneficial mutual fund options that would fit in the purpose. The goals may be short term, medium term or long term for tenures below one year, about 5 years and beyond 5 years respectively.
Risk in the investment is an equally vital factor for choosing to invest in a specific mutual fund. However the risk varies from person to person.
- A PLETHORA OF INVESTMENTS
Rather than selecting a single mutual fund for investments, experts suggest to adopt a number of investments as a mixture for better returns. However all the comprising mutual funds in the mixture should be carefully chosen. There is no specific count of investments one needs to have. But the general trends suggest that after one has invested in 5 to 6 investments, it is most likely that by investing further the investments would overlap. The functioning of every investment should be carefully studied before proceeding. A mere advertisement or a recommendation should not be the only driving force behind your choosing the mutual fund. It is advisable to use a large cap stock fund as the core along with a number of other funds like mid cap stock, small cap stock, foreign stock etc.
- DURATION OF THE INVESTMENTS
The time duration or the tenure of the investments should be chosen such that the person concerned can withstand the variations that are associated with it. The variations can be small or even large. However it should be ensured that the person stays invested in this time period for gaining the expected outputs and benefits.
- WEIGHTAGE TO THE MUTUAL FUNDS
Every mutual fund should have a specific weightage which should be decided basing on the net income and the returns associated with the policy. However no mutual fund should have a weightage less than 10 percent. The weightage plan should be strictly followed for making investments in every financial period.
- RISK TOLERANCE AND ASSET ALLOCATION DETERMINATION
An estimate of the amount of risk one can tolerate helps to build a perfect beneficial mutual fund portfolio. A higher tolerance for risk results in assets like bonds or cash whereas lower risk tolerance lowers the stocks in cash or bonds.
For beginners, it is advisable to consult a financial expert before building up a mutual fund portfolio. If there is a shortage of funds in the beginning, one should start investing with the core mutual fund and then expand the investments gradually. There are a variety of custom built portfolios one can always refer to. You can also use internet platforms like Groww.in Check how to find the right mutual fund portfolio.