• Green Tree Distribution

Creating the Right Mutual Fund Portfolio

Most Investors make ad-hoc investments into mutual funds without knowing about the right way to build a successful long term Mutual fund Portfolio. Read on to understand the right way to go about selecting funds for your #investmentportfolio.

Mutual Funds have by far outperformed most other asset classes over the long term with a reasonably good amount of consistency. Lets us explore where to invest within this world of Mutual Funds.

SEBI has broadly classified MFs into the following groups/schemes :

  1. #EquityMutualFunds b) #DebtMutualFunds c) #HybridFunds d) Solution oriented e) Others.

Of these “Solutions oriented” has solutions like Retirement Fund and Children’s fund and “Others” includes FOF (Fund of funds) and Index Funds. Since products in group d) and e) and built with the first 3 groups, lets focus on these for now.

Equity Mutual Funds : This group is sub-classified into 11 categories depending on the stocks they invest in (large, medium or small sized companies) and/or their investment strategies. Please consider the following when choosing within Equity Mutual Funds :-

a)Investment horizon : You should stay invested for at least 7 years

b)#Volatility: Most volatile amongst the 5 groups. Hence point a) above.

c)Returns : Will reward the disciplined investor with very good returns, enough to beat inflation and build a very healthy corpus /wealth.

Debt Mutual Funds : This group is sub-classified into 16 categories depending essentially on the duration of the debt portfolio and the credit quality of the bonds being held. Please consider the following when choosing to invest within Debt Mutual Funds :-

a)Investment horizon : Match your investment horizon with the average maturity/duration of the debt portfolio.

b)Volatility: Increases with increase in duration (interest rate risk) so do consult your mutual fund distributor / investment advisor about product suitability / interest rate cycle trend etc.

c)Returns : Returns from Debt funds over 3 years or more will in general be much better than your bank fixed deposit rates because of 2 reasons :

i) #Taxation advantage after 3 years due to indexation

ii) Besides the accrual gain, debt funds also gain from marked-to-market movements which are beneficial over the longer term.

Debt funds are however not free of risks and one needs correct guidance about suitability of the various debt schemes on offer.

Hybrid Mutual Funds : This group is sub-classified into 6 categories depending on the extent of investment allowed in various asset classes like equity, debt etc. One would typically go in for a hybrid if one wants to reduce the risk levels of equity investments but wants a slightly higher return compared to that of a debt product. Ideally the investment horizon for these products should be 4 to 5 years .

A good, well-planned portfolio should first be conceived taking into account the investor’s needs and risk-taking ability and then constructed using the above explained groups in the correct proportion.

Do Connect with us at #GreenTreeDistribution to learn more and to ensure you make the right #mutualfunds investment portfolio.

96 views0 comments

Recent Posts

See All