5 steps to find the right mutual fund investment solutions

For many of us, starting anything new can be exciting as well as terrifying. Take building an investment portfolio for instance. Everyone knows how important it is to have one, but most have no clue about how to get started. If you are also contemplating investing in mutual funds to start building your portfolio, you need to first go through this quick mutual fund investment solutions guide. It can save you from making rookie mistakes and help you commence your financial journey on the right foot.

• Table of contents

1. 5 steps to find the right mutual fund investment solutions
2. Investment goals
3. Risk profile
4. Investment strategy
5. Periodic reviews
6. Tax implications

5 steps to find the right mutual fund investment solutions

Here are a few factors you should consider when you are planning to start investing in mutual funds:

Investment goals

Your investment goals are the very first things you need to be clear about before you start your investment journey. Setting financial goals will help you find the right investment avenues and tie them together so you can achieve your goals. You can set up short-term, mid-term and long-term goals and then map them to different investments. For instance, you can have a short-term goal like buying a state-of-the-art electronic equipment for your home, a mid-term goal like a family trip to Europe trip in two years and a long-term goal like building a retirement corpus. You can then find mutual fund schemes to suit each objective.

Risk profile

According to the latest Securities and Exchange Board of India (SEBI) mandate, mutual funds must be assigned one of the 6 risk categories on the riskometer. The categories are: low, low to moderate, moderate, moderately high, high and very high. You must make a mutual fund investment after checking the risk associated with it. For example, if you are a conservative investor, you can invest in mutual funds belonging to the low and low to moderate categories.

One thing that you must keep in mind is that mutual funds belonging to the moderately high, high and very high risk categories seek to offer opportunities to earn potentially better returns than those in the low and low to moderate risk categories.

Investment strategy

When it comes to creating an investment portfolio, there are no fixed formulae. There are so many permutations and combinations that can be used to create a customised portfolio that meets the investor’s needs. Some investors may be fine with investing in a flexi-cap fund, some may want to add debt funds to the mix, while others might want to further diversify by making multiple fund investments. Therefore, you must also devise your own investment strategy to build your mutual fund portfolio.

Periodic reviews

Setting up an investment goal and mapping it with a mutual fund investment is a great start. However, it is not a do-once-and-forget-about-it kind of a thing. Market volatility affects the performance of your mutual funds, so you must monitor the investment regularly and adjust your investment strategy if the need arises. You can set the frequency that you think suits you. You can consider reviewing your investments against your investment goals on a quarterly basis.

Tax implications

One thing that some investors forget to factor in when making mutual fund investments are taxes. Irrespective of the types of mutual funds you choose, you must pay taxes on capital gains at the time of redemption. The tax rate depends on the type of mutual fund investment and the holding period of the investment. You can talk to your financial advisor to understand how you can deal with the tax implications of your investments.

In conclusion, you should start creating your mutual fund investment solutions portfolio only after defining your investment goals. The rule of thumb is to pick the funds according to your risk profile and investment strategy. It is also crucial to review your investments periodically and keep the tax implications in mind. Then, it is all about practising discipline and patience and allowing the power of compounding to work in your favour.

FAQs:

How do I start building a mutual fund portfolio?

Begin by setting clear financial goals and assessing your risk tolerance. Then, diversify your investments across various mutual fund categories, such as equity, debt, and hybrid funds, to spread risk.

What factors should I consider when selecting funds for my portfolio?

Consider factors like your risk-appetite, investment objective, time period, the scheme’s objective, experience of the fund manager. Align fund choices with your goals, whether they're for short-term gains or long-term wealth creation.

How often should I review and rebalance my mutual fund portfolio?

Regularly review your portfolio, at least quarterly or when your financial goals change. Rebalance if the allocation deviates significantly from your target mix to maintain your risk-return balance.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

This document should not be treated as endorsement of the views/opinions or as investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.