By now most of us are aware of how mutual helps to build a substantial corpus while negating investment risks. With time, more and more investors are preferring mutual fund investments along with the traditional investments. However, a majority of such investors want to know how they can make optimal use of such investments and maximize their potential returns.
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Here are some of the strategies that can help you build a bigger corpus through mutual fund investments:
SIP is a flexible and easy investment option that allows investors to contribute small amounts of money on a monthly or quarterly basis towards mutual fund investments. You can build an adequate corpus over a long investment horizon through mutual fund investments.
SIP contributions can be auto-debited from your account to ensure contributions are made regularly and in a disciplined way. You will be allocated a certain number of units at the ongoing market rate based on the NAV for the day. It helps you avoid the risk of timing the equities market and facilities the creation of wealth by averaging the investment cost. Additionally, it allows you to get higher returns on investment due to compounding.
If you want to generate more returns through mutual fund investments then the key is adopting a portfolio diversification strategy. A diversified mutual fund portfolio contains funds that are diversified across various market sectors and asset classes.
You can build a diversified portfolio by following the below-given steps:
While diversifying, make sure to balance the overall risk and returns factor. Do not invest in similar types of securities as they will not work to reduce overall risk.
See Also: How Mutual Funds Work?
Mutual fund investments can also be done through direct plans. Instead of taking the help of fund managers or intermediaries and paying a high expense ratio, you can increase your earning by opting for mutual fund investments through direct plans.
You can use the below-mentioned platforms to make direct mutual fund investments:
Retail investors can invest in direct mutual funds through online and offline subscriptions. Since it does not involve intermediaries, investors must possess sound knowledge of the processing activity that includes KYC compliance, application submissions, portfolio consolidation, and nomination.
Direct plans are a much better option than regular plans if you aim to make some extra income. The reason is they come at a lower expense ratio and thus gives higher returns.
See Also: How To Invest In Mutual Funds Online?
You work doesn’t end once you establish your portfolio. You should consider periodic reviewing and re-balancing of your portfolio according to the changing market conditions.
Make sure you investment mix and asset allocation reflect the current preference of risk and help you achieve your goals within a specified time horizon. Let’s take an example to understand this concept:
Suppose you have started your portfolio by investing an equal share in equity and debt. Over time you have drifted towards equity investments as you are getting favorable returns from it. This way you have drifted towards higher equity exposure due to favorable performance of the equities market. However, after a point, you may want to rebalance your portfolio and return to the original mix or you may increase your debt investment to balance the equity exposure.
Thus, periodic reviews allow you to take corrective actions due to change in your risk appetite, changes in financial goals and change in market conditions.
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