Jan 01, 1970 4 min read

Understanding Mutual Fund Portfolio & the Rules to Make It Work Better

Here’s what you need to know about the portfolio and its management for effective investment.
Diversifying or di-worse-ifying is all in the hands of the investors. It’s your choice and preferences which ultimately result in building fortune or hardships for your future. Mutual fund investment alone is not sufficient, it must hold the right portfolio as well to attain the strongest desires of the life.

Ergo, it is quite essential to possess a strong portfolio so that you can lead toward attainment of your dreams without wasting the resources and the efforts.

Portfolio: Meaning

Until you know how to cook food, you can’t even think of the ingredients you would require to prepare the dish. Similarly, you have to understand the meaning of portfolio first so that you can understand how to formulate an effective one for yourself. In the context of a mutual fund, an investment portfolio is nothing but a collection of different assets wherein one has to put in the capital for earning returns. The portfolio concentration depicts the share held by each component as a proportion of the total. The entire performance of the fund, as well as its nature, depend on the holdings which ultimately offer returns on the invested capital. Different assets which form of the portfolio in mutual funds are -

  • Equity Assets - which include the stocks, shares and other securities having a direct investment in the equity capital of the companies. These instruments tend to provide long-term capital growth on the basis of the performance of the companies in the market and industry in which they fall.
  • Debt Assets - which include all the money market and debts instruments like corporate papers, treasury bills, debentures, bonds, etc., which yield regular income to the investors in the form of interest. They help in bringing stability to the financial status of the investor.

Importance of Portfolio in Investments

Any investment yields returns on the basis of the assets it holds. The taste of any dish that you like is based on the ingredients used. However, the quantity of the ingredients is also an essential consideration as it ultimately makes the dish ready-to-eat. Similarly, a portfolio having an adequate asset holding makes it reliable and acceptable for the purpose of investment. Every investor has certain goals and risk appetites on the basis of the which they make the investment. The portfolios of the schemes are also designed on the basis of certain objective or risk profile to match that of the investors. An equity fund, which has investments in the shares and stocks of companies provide returns in the long-term period and highly volatile in nature. This is because the instruments or the securities which they hold are associated with the performance of the companies which is further dependent on various market and internal factors. Accordingly, they can be opted by those investors who have long-term goals and a high-risk appetite. Hence, the portfolio of any mutual fund investment helps one in determining the suitability as well the profitability in order to pursue the investment objectives.

How to Let Your Portfolio Work for Your Goals?

Now when you know how a portfolio plays a pivotal role in making your investments worthwhile, you must know how you can let it work effectively for you. Here are some of the elements that you need to practice to keep your portfolio returns high yielding.

  1. Assess Your Risk - In reality, you might have an adventurous life, but taking financial risk is something very critical. You must match your risk appetite, i.e., aggressive, or stable, or conservative with that of the fund’s portfolio prior to making an investment.
  2. Be Systematic - Once the risk appetite and time horizon is decided, next, you have to auto pilot your investments so that you don’t jump the gun. Start an SIP to make a systematic investment in order to gain the cost averaging and compounding benefits.
  3. Diversify - Although mutual funds hold diversified instruments, it won’t work that good for you if they all are based on a single investment style or theme. You must think of diversifying across different asset classes and investment styles to reduce risk.
  4. Rebalance - The ratio of the asset allocation that you hold varies as your money grows. Some of the asset classes will outperform the others; your portfolio can go out of kilter. In order to overcome such situations, you must keep a regular end-of-the-year review and rebalance the portfolio accordingly.
  5. Review - Keeping a regular check is an essential part of any investment in order to achieve the goals within time. You too must keep reviewing your investments regularly by using our ‘Track Performance’ feature to analyse the performance of the fund.

Portfolio management is the most important factor that has a direct impact on the valuations of the investments. You must avail our services to know how you can keep a track on your investment portfolios in order to gain substantial returns. MySIPonline and team are ready to serve divergent needs of the clients 24/7.

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