Mutual Fund Industry
| November 29
Building a successful investment portfolio is a dream that many aspire to achieve. A well-maintained portfolio is critical to the success of your investments. But more often than not, people get cold feet when it comes to investment because it seems too complicated to master. If you are struggling in a similar post, this post unlocks the six essential secrets that will make your portfolio look amazing and get you the full value for money.
Don’t put all your eggs in the same basket
Whether you are a beginner or an expert, diversification of investments is essential. Diversification cuts down the risk and improves the earning potential of your investments. If you want to reach long-time investment goals with minimum risk, investing in a range of assets is the way to go. If you remain too invested in only one kind of asset, your portfolio can get completely wiped out if that particular asset stops performing well. A diversified portfolio also allows you to explore other assets and figure out a combination that works best for your investment needs.
Start with a clear investment objective
An investment objective sets the tone of your portfolio. Once you identify your investment goals, it will be less daunting to take investment decisions. For example, if your goal is to save money to buy a luxury car in the next three years, investment in liquid funds or short terms funds will be the ideal investment option. If your goal is to save for retirement, then you need to consider investments in pension funds. Knowing what are you saving for can save you from making imprudent investment decisions.
Don’t overlook tax efficiency
Investment options giving optimum returns are of no use unless your investment strategy is tax efficient. Being strategic about the tax efficiency of your investment plans maximizes your output. Assessing investment options solely by the yardstick of returns is not recommended for a great portfolio. Always look at the after-tax returns to make an informed decision. For example, if you have invested in an equity fund and want to switch before the expiry of the holding period, you will attract 15% capital gains tax. Irrespective of the promised returns from an investment, you will have to sacrifice a portion of your returns to the taxes.
Understand what you are investing in
When it comes to investment, following the fad is not the best decision you can take for your portfolio. Spend time to understand the investment avenue to ensure that it aligns with your investment objectives. If you are stepping in the world of investment and want to try out mutual funds, start with a low-risk fund. If you are entirely risk-averse, look for safer investment options such as fixed deposits, government bonds, company deposits, etc.
Don’t overdo your investments
Monitoring the performance of your portfolio and rebalancing is advisable. But if you want to chase after every new shiny investment option in the market, your portfolio may suffer. Avoid adding new assets or investments simply because they are available. Speak to an investment advisor to determine if the investment is worth it. As the old saying goes, too many cooks spoil the broth. So try to keep a clean and simple portfolio that is easy to manage.
Reduce the commissions
Many investors lose a great deal of money on account of brokerages and commissions. For example, a regular mutual fund includes the payment of upfront and trail commission (typically between 0.8% to 1.5% annually) to the distributor for getting the business. This makes a regular mutual fund more expensive and results in lower returns for the investor. In contrast, investing through a direct mutual fund plan does not have any commissions barring the fee paid to the investment adviser. Opt for investment options that do not involve brokerage. This can help you generate maximum returns.
Investing doesn’t have to be scary. Equip yourself with the right tools and strategy to have a wholesome portfolio that delivers desired results. Don’t let the fear of investment paralyze you forever.