There is a significant rise in the number of mutual fund schemes available in the market. Investors are now aware of the benefits of investing in mutual funds and are making the right choices based on their financial goals. Mutual funds carry low risk and it is easier to diversify the fund by investing into different schemes. However, often investors are not aware of the type of fund they should invest in.
Since fund managers handle your investment, most investors only look at the returns and do not consider the underlying risk of the sector. Based on your investment goal and tenure, you tend to make investment choices on the funds that have shown higher returns. Through this, you think that you have diversified your investments. But this is not enough. Invest in mutual funds to achieve the real purpose of diversification by not simply investing in different funds, but by selecting the right sector.
The trick to diversification is to relook all your asset allocations and diversify your holding within a particular fund. You must rebalance and reallocate your assets from time to time. This is because the market movement will have an impact on your portfolio and your financial goals will change with time. Fund managers who handle your investment in mutual funds try to invest in securities that are high-performing and carry low risk.
There is no point diversifying if you are invested in the same securities through different funds. Not many investors notice or even know that a major chunk of their investment is overlapping across different funds. Investors choose equity funds to generate higher returns and to reduce risk, but they rarely observe that every fund is investing in the same sector or industry. Remember, if a particular sector underperforms, your portfolio will show negative returns. For example, if you have invested a majority of the sum into the energy sector and the remaining into the financial sector, even if one of the sector under performs, you will notice a negative impact on your portfolio.
Never judge a mutual fund portfolio simply by looking at the equity and debt holdings. Instead breakdown the portfolio sector-wise and compare the investments made across different sectors. Further, look at the returns generated in the past by the sectors and reevaluate your portfolio. You need to keep in mind that if a particular sector underperforms, the returns on your mutual fund investment will decline. So as a new investor, you should choose to set up a Systematic Investment Plan (SIP) that invests across different sectors in the fund. For instance, if you have INR 20,000 in hand for investments, investing INR 5,000 across four different sectors will reduce the risk of loss and diversify the entire portfolio in the true sense.
Individuals who have already invested in different funds need to relook their portfolio and evaluate their asset allocation in order to ensure diversification across sectors. Based on your risk appetite, you may buy mutual funds online that include large cap, mid cap, balanced funds, debt funds, and sector-specific funds. Do not restrict your fund allocation to top-performing funds only; you should ideally invest in large-cap and mid-cap in order to gain the benefit of both the sectors across different asset classes. Judging the performance of the fund by their Net Asset Values will not provide the right information to the investor. The performance should be compared over a period of three to five years or longer.
As an investor, you need to have detailed information about your portfolio when you sit to assess your asset allocation and before you invest in mutual funds. Interpretation of the numbers and understanding the risk-return ratio is significant.
In order to help them make the right investment choices, Angel Wealth offers a unique mobile application that is user-friendly and is free of human bias. The Angel Wealth mobile application is an automated investment engine, which offers personalized investment recommendations based on your requirement. The unique feature of the application is an ARQ investment engine that runs on cutting-edge technology and algorithms that give detailed insights of the market.
The app helps monitor and rebalance the portfolio without you having to do anything about it. Download it today so that you may buy mutual funds online using the app and invest from anywhere, anytime. You may achieve your long-term financial goals with the right investment strategy by choosing the best investment options recommended to you by the app.
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