Should I change mutual funds in my portfolio?

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Systematic Investment Plan

Financial planning is essential for anyone who wishes to become wealthy over the long term. It is almost impossible to become rich overnight. Also, the term financial planning may sound complex but it is all about determining your life’s short term and long term goals and also mastering the art of money management. Depending on your financial goals, your investment objective, your investment horizon and your risk appetite investors should decide where to invest their hard earned money. Usually, there are two types of investors – those who are willing to take some amount of risk with the hope of earning capital appreciation in the long run and those who do not wish to risk their finances at all.

Conservative investors with zero risk appetite can settle with traditional investment options like bank fixed deposits and public provident fund. However, the problem with conservative schemes is that they offer fixed interest rates. In the recent past, interest rates have been constantly falling which is why it is almost impossible to target your life’s financial goals by only investing in conservative schemes. On the other hand, if you are someone who is willing to take some risk with their finances with the hope of earning decent capital in the long run, you can consider investing in mutual funds.

A mutual fund is a pool of professionally managed fund that invests in a diversified portfolio of securities. Mutual fund is probably the only investment scheme to offer such diversification that it gives investors an opportunity to seek capital appreciation from industries and sectors that remain unexplored for direct investment.A mutual fund manager must follow an investment strategy such that the scheme is able achieve its investment objectiveand, in the process, outperform its underlying benchmark.

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What is a mutual fund portfolio?

According to mutual fund experts, one must not depend on any one asset class for income generation.If your investment portfolio consists of mutual funds, then it is essential to diversify the same depending on your investment objective and risk appetite. Ideally, one should have an80: 20 allocation when it comes to mutual fund schemes where 80 percent of the total assets are allotted to equity funds while the remaining 20 percent is allocated to debt instruments. This way, it is assured that while the equity investments get exposure to volatile markets and generate income, the debt portfolio provides cushion against market volatility.

Is it essential to change your existing mutual fund portfolio?

To determine whether your existing mutual fund portfolio needs modifications, investors have to make sure that they track the performance of their portfolio every six months.If the mutual fund schemes which you invested in are performing as per your expectations, then one need to make changes in their portfolio. However, if any particular mutual fund scheme has been a consistent underperformer and doesn’t show any signs of improvement then one might to have stop investing in that particular scheme and switch to a better performing fund.

Mutual fund investments do not guarantee capital appreciation, but it is the duty of the investor to make sure that they withdraw they investment from any non-performing assets. After all, it is you hard earned money and you do not want your portfolio to bear any unforeseeable losses. There are several factors which determine the performance of a particular mutual fund scheme. The performance of a mutual fund scheme depends on the performance of its underlying assets and all the sectors and industries in which it invests. So if you wish to achieve capital appreciation then make sure that you keep a healthy mutual fund portfolio and keep tracking the performance of your schemes at regular intervals.