Simple Step 1: Know your fund
Try answering this question. Do you know the objective of every fund that you have invested in? Probably not!
Take for example a large equity diversified fund which belongs to a well known fund house. It follows an index plus style of investing and invests at least 60% of its money from a selection of stocks in the BSE 200 Index.
The fund has a large cap bias and hence is suitable for those investors who can take medium to high risk (you take risk when the outcome of an event that you undertake is not certain. In investments, risk could lead to less than expected earnings or even erosion in the investment value).
When you know the objective of a fund, it is easier for you to set an expectation and align the fund selection. You should not be investing in a midcap fund if you cannot handle the inherit enhanced risk.
Simple Step 2: Make time tested funds a larger part of your portfolio
More new funds are churned out by the marketing machinery of the mutual fund houses than a real attempt to add value to your portfolio. Just avoid them!
Also avoid the sectoral/thematic funds as they tend to work in cycles with a restricted investment mandate.
There are many time tested (read experienced) funds with fantastic track records available to meet your needs.
Simple Step 3: Keep Returns expectations aligned with the risk you are taking
Returns are a function of many factors: risk being a key one. The play of risk in the investment world is often not understood. Remember, higher the return, higher the risk!
While searching for the maximum returns, you may not realize that you may be taking on the highest risk. Imagine driving at top speed. The chances of an accident grow exponentially. With equity mutual funds, you could be thinking the same way.
So do not over expect. Know your risk taking ability and select your funds accordingly.
Simple Step 4: Review your portfolio regularly – avoid frequent churning
Over a period of time, a portfolio needs to be rebalanced to reflect changes in your needs and risk taking ability. Compositions of funds undergo change and so does their performance. Hence it is necessary to review the portfolio regularly, at least annually, so as to ensure that it remains on track to deliver on your expectations.
However, avoid frequent churning, which can increase your overall expenses and bring down your total returns.
Simple Step 5: Take informed decisions. – Keep yourself updated.
Track important economic variables like interest rates, inflation, and industry growth. More simply, be observant and look for economic activity around you to understand what is happening.
Seek researched and unbiased views from experts. While it cannot be denied that some of your agents/advisors are honest in their advice, many are not.
So, you have to take control of your own investments and portfolio and seek the right information inputs from a source, which has no interest in selling a particular mutual fund to you.
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