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Investing your hard earned money is arguably one of the most critical financial decisions you will ever make. Stocks or bonds, fixed deposits or mutual funds; the thought of investing usually clouds the mind with a plethora of such options. Mutual fund investors find it particularly difficult to choose from the wide array of funds that are available.

This becomes even more complicated when an investor has to build a portfolio of funds. A portfolio of funds is a set of investments made in various mutual fund schemes according to your financial goals and risk appetite. Having a portfolio allows you to monitor, analyze and manage your investments in an effective way.

Why is building a portfolio good for me?

If you invest in mutual funds, then building a portfolio will only do you good. Exercising due-diligence before investing is usually not enough to ensure that the investment performs as expected. Regular monitoring and managing the investments is the key to ensure that your money is working for you while you sleep. A portfolio allows you to do just that – look at your overall financial standing, buy or sell units if they are not in sync with your expectations and avoid terrible losses.

There are many investors who invest in a couple of funds and hold onto the units regardless of their performance. This is usually counterproductive for a range of reasons:

  • No diversification & enhanced risk– All the eggs are being kept in one or two baskets.
  • Opportunity Loss – Different sectors of the market outperform the others at different times and the sectors these couple of funds are invested in might be experiencing a downslide.

So, building a portfolio that fits in with your goals and regularly monitoring it can make a lot of difference to your returns.

How to tie your portfolio to your financial goals?

A portfolio should be created by mapping the financial goals to your investments. Wealth creation, tax saving, capital preservation and retirement corpus are some of the most common investment goals. Once your investment objectives are in place, the portfolio can be built to ensure that you are on track to realizing your aspirations.

How many funds should I have in a portfolio?

We have come across many investors who loosen their purse strings at the first sight of the next ‘shiny thing’ in the investment market. Such investors usually end up with 10-15 different fund schemes in their portfolio. This happens due to the lack of a plan.

A portfolio with 3-5 mutual fund schemes across different market caps and/or asset classes is ideal. Remember, like most things in life – too much diversification leads to lack of control. Minimalistic is the way to go.

How do I choose the funds for my portfolio?

As is true for any investment, choosing funds for your portfolio should be based on your investment goals, risk tolerance and duration of investment. A diversified portfolio is usually what investors strive for keeping their objectives in focus and inherent risks in check. You can start by identifying the category of funds that you want to invest in. Once the category is finalized, you can look at various schemes available across different fund houses. Consider your age, income and financial goals before zeroing in on a scheme. A word of caution – be wary of the ‘one size fits all’ approach.

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If you had invested Rs 10,000
every month for last 25 years
in equity funds, you could make

₹ 3.3 Crores
at 15%* annual returns

Rs 30 Lakhs

Rs 3.3 Crores

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