Most of us are aware that mutual funds help in creating adequate funds while reducing investment risks. Over time, more and more investors are prioritizing traditional investment instruments as well as mutual fund investments. However, most such investors want to know how they can make maximum use of such investments and maximize their potential returns. Therefore, through this article, we are being told how you can make more money through mutual fund investment.
Use SIP for disciplined and regular investment
SIP (SIP) is a flexible and easy investment option that allows investors to contribute small amounts to a mutual fund on a monthly or quarterly basis. You can build substantial corpus through long-term investment horizons in mutual funds. Through SIP you can be sure to contribute to the mutual fund regularly and in a disciplined manner. On investing through this, you will be allotted certain units at the prevailing market rate on the basis of NAV. SIP helps to avoid the risk of equity market and allows for the creation of an average capital of investment cost. Apart from this, it also allows you to get a higher return on investment due to compounding.
Create a diversified portfolio
If you want to get higher returns through mutual fund investment, then you have to adopt a portfolio diversification strategy. A diversified mutual fund portfolio consists of funds from various markets and asset sectors. You can build a diversified portfolio by following the steps given below –
- Use portfolio’s popular design – To create an effective portfolio, you need to create a structure that you can follow. The most popular design of the portfolio is known as Core and Satellite. The core represents the largest portion of your portfolio. Satellite funds represent a small portion of your portfolio and are built around core funds.
- Invest in different categories of funds – Try to include large-cap funds as your core investment. Consider holding mid-cap, small-cap and foreign stocks and fixed income and money market funds in your satellite funds.
- Invest according to your risk appetite – Before building your portfolio, you should have complete knowledge of your risk appetite. This determines your ability to stay invested in the event of market fluctuations and the extent to which you can invest in risky funds.
- Determine asset allocation – Asset (asset) allocation can be aggressive, moderate, or conservative. It is based on your risk appetite. If your risk appetite is high, then you can invest more in equity than bonds or cash and if risk appetite is low, you should invest less in equity. When diversifying, be sure to balance the overall risk and return factor. Do not invest in the same type of securities, as this will not help in reducing the overall risk.
Invest through direct plans
Investment in mutual funds can also be done through direct schemes. Instead of taking the help of fund managers or middlemen and paying a higher expense ratio, you can increase your earnings by choosing to invest in mutual funds through direct plans. You can use the following platforms to make direct investment in mutual funds –
- Official website of AMCS
- Mutual Fund Registrar Karvy MFS
- Mutual fund utility
- Investment websites of SEBI registered advisors
Retail investors can invest directly in online or offline mutual funds. Since it does not involve intermediaries, investors should have a good knowledge of all the activity related to it. This includes KYC compliance, application, portfolio consolidation and enrollment etc. If you want to make some extra income, direct plans are a much better option than regular plans. In direct plans, the fund manager and broker do not have to pay, so their expense ratio is low and you can get higher returns.
Periodic review and rebalancing
Your work does not end after creating a portfolio. You have to periodically review and balance your portfolio according to the changing market conditions. Your portfolio should be in accordance with your risk potential and goals. For example, suppose you have created a portfolio by investing equally in equity and debt. Over time, you started investing more inequity, because it gives you favourable returns. However, after a time when you do not have the expected profit in equity, you can rebalance your portfolio. For this, you have to periodically review your investment portfolio.