In the modern age, investment is perhaps one of the most necessary financial activity that has the potential to secure an individual’s financial security. Therefore, it is essential for every earning individual to have a good financial plan in place. In addition to that, it is also imperative that the individual sticks to his or her financial plan with frequent analysis and reviews. However, merely having a plan and following it does not necessarily guarantee that the individual is making the most of his or her money. There is a need to be smart about the strategies and the tools which are to be used to maximise the profits. In this article, we will specifically be discussing the methods to ensure that you get the best out of your mutual fund investments.
Diversification of Investment
The benefits of diversification of investment are manifold. It has historically been used by investors as an invaluable tool for managing risks. It is a straightforward process of investing across multiple asset classes to ensure risk is balanced with stability. Such a strategy goes a long way towards creating a hedge against uncertainties in the market, while also benefiting the investor in the form of returns from a wide range of assets. While diversification is obviously a great idea from a portfolio management point of view, over-diversification, however, has the tendency to be counterproductive, especially when investing in the long-term.
One of the problems that many beginners, as well as some experienced investors, faced when diversifying their mutual fund investment is that there was a sense of inconclusiveness in regards to many investment schemes as to exactly which asset class they belong to. In an attempt to simplify portfolio management for the investors, the Securities and Exchange Board in India had issued a directive according to which the Asset Management Companies need to categorise similar schemes in a systematic and standard manner. So, it is important for investors to make the most of it and ensure they know the purpose of the mutual funds in the overall portfolio. HDFC mutual fund are one of the companies which have taken this directive very strictly and has made identifying asset classes much simpler for their investors.
Invest Based on Individual Financial Goals
Investment plans should be made keeping in mind several factors. Therefore, it is essential to have a clear idea as to what one wants to achieve and in what timeframe for creating a successful and realistic financial goal. When deciding on the goal, one must understand the risks involved. If you want to maximise your profits truly, then it is understandable that you will have to take certain risks. At the same time, you should also understand that there is a possibility that you may incur a loss of the principal amount invested in the mutual funds due to market volatility. This is where younger people have an advantage as they have the chance to earn high returns by exclusively focusing on equity investments. However, for those people who do not have age on their side, it is better to opt for them to concentrate on debt-oriented investment schemes. Additionally, investors should have clarity regarding the financial goal and why exactly they are investing. This will ensure that the investor invests in the ideal investment option.
Mixed Investment Strategy
It is a common phenomenon for inexperienced investors to opt for Systematic Investment Plans. Apart from the beginners, those people who invest their monthly surplus after paying all the expenses also prefer Systematic Investment Plans, which are also known as, SIP. On the other hand, those investors who are experienced or those with long term investment strategies, typically invest in lump sums. Both the investment options have their own set of positives. Hence, if you are able to invest smartly in both SIPs as well as make lump sum investments, then you will be in a position to benefit from both. It is possible for an investor to purchase units at a much lower price than usual by correctly timing the purchases with the lump sum investment strategy. Or else, the investor also can make regular investments without the headache of timing the market at all. With SIPs the advantages include rupee cost averaging and the benefit of compounding. Hence, in order to maximise the profits, you should try and adopt a strategy which is a mix of both.
Periodic Update on Returns
Building a solid and diversified investment portfolio is not a one-time job. It needs periodic reviews and changes if there is a need for it. Hence, over time you should check the viability of the existing investments and their returns. Depending on the status of the investments many actions can be taken. For example, if a certain investment is not performing as per your expectation then reducing the exposure of the investments can help.
It is however widely believed that one should not make a decision in haste. There is a line of thought that temporary issues often cause short term dip in the market, which gets corrected over time. Thus, investors should not take action at first sight of volatility. Thus, for inexperienced investors, it is perhaps best to consult an expert before taking any major decision related to mutual fund investments.
Stay Up-to-date with All The latest Market Activities
This is perhaps one of the important things related to investments overall. It is crucial that investors are aware of the investment basics and know how exactly the industry work. In addition to that, it is essential for investors to spend time learning various things related to the market. This can often improve your judgement of the industry, thus enabling you to maximise your profits by making the correct decisions at the correct time. This builds an investor’s experience which can be crucial in this type of a rapid market. This is particularly important when dealing with thematic or sectoral mutual funds. Good research capabilities will also allow you to make the most of the New Fund Offers or NFOs, which is trending in the market right now.
Predicting the market correctly and consistently is extremely difficult if not impossible. However, if you are able to maintain strict financial discipline, then mutual funds do provide an avenue for high returns on investment. Thus, the abovementioned tips could prove to be the difference between you getting an average return to an excellent one.