How to optimize your Mutual Funds?

Investors must have some schemes in their mutual fund portfolio.  They may have bought it with or without analysis, but it is a part of many investors’ live and might be potential clutter. Of these, serious investors have interest in making money through mutual funds investments and they are very clear about the rules of mutual funds investing. The second category of investors actually forms 99% of stock investor population. Their mind-set is to make some quick gains from mutual fund in a matter of weeks or months and sell their holdings as and when they feel stock market is in bear phase.

The amazing thing about mutual funds is that investors feel that the more mutual funds they invest in, better it would be for them. We have seen thousands of investors having mutual funds portfolio of 5 funds, 10 funds and up to 20 funds. They get always lured with new launching and churn their portfolio with the fancy names of mutual funds. They tend to think that by investing in more mutual funds, they are spreading the risk and getting the services and expertise of different fund managers. But in reality, all they are doing is creating so much duplication in their portfolio that it will lead to clutter and a waste of time, tracking those mutual funds does not adding any additional value to their portfolio. They collect whatever they encounter in their financial life. Ultimately, they just become a ‘collector’ who keeps accumulating different mutual fund schemes making the headlines.

Mutual Fund Investors have to understand that adding new mutual fund coming into the market will not help them in any ways because after a point they have their investment in most of the companies in stock market. So what they have to understand is that after a certain point, adding more mutual funds of the same category is of no much value for the portfolio.

Now, the question crops up that how many number of Mutual fund schemes must keep investors’ portfolio. The number is necessary as it gives us the exact figure and our level of Mutual Fund Portfolio. The number shows us that which Mutual Funds are really important to us as an investment option. Are we making the optimized usage of Mutual Funds or not? Or it is so that we have over bought Mutual Funds.

Mutual fund investors have to understand that more number of mutual funds does not matter, but the underlying thing matters, the allocation in different stocks and their quality matters. Having too less of Mutual Fund is also not good at all. Less number of Mutual Funds means that you are losing out the investment opportunity served to you by Mutual Funds. So at the end you need to wisely select optimum your Mutual Fund portfolio.

Mutual fund investment must depend on financial goals of an individual and its time horizon; we can always arrive at a number or a range which should be optimal for a large chunk of mutual funds investors.

Sometimes making a fresh start is much better than repairing something. Most of the people do not invest in the same old fund they have bought; they plan to allocate small amount to each is Rs 500 or Rs 1,000 per month in various number of funds rather than to invest Rs 5000-10,000 per month in 3-4 funds only. Note that 3-4 Equity Diversified Mutual funds will cover almost all the big companies in your portfolio. Consistency in investment and faith in one of the good funds you have chosen is the right way to invest in mutual fund.

The most important aspect is that, in how many Mutual Fund Categories You Have Invested? Basically there are six categories of Mutual Funds which you can choose to invest in Mutual Funds. They are Stock Funds, Bond Funds, Money Market Funds, Balanced Funds, Gold Funds and Asset Allocation Funds. Our analysis presents that your Mutual Funds portfolio should not be composed of the same type of fund categories. Let us understand this further.

Suppose you have bought 10 Mutual Funds and in all of these you had invested in Large Cap Stock Funds. So, if the Large Cap Stocks prices fall and do not register an appreciation over a long term, your overall return on investment would suffer. This has happened chiefly because you have locked all your investments in only one type of Mutual Fund category. And that Fund category had not performed and so you get registered losses. Instead, if you also had gone for categories such as Bond Funds, Balanced Funds, and Gold Funds or even for Asset Allocation Funds, the scene would have been quite different. Fund category diversification would have helped you to optimize your returns and you would have gained instead making losses.

 So a proper mix of mutual fund categories is essential for you if you really want to safeguard yourself from losses and register optimized returns. If you have more than one Mutual Fund with you, then it is necessary to choose different categories of fund. Diversification in Funds is a defensive investment strategy which results into profits in the long run.

It is just not enough that you buy Mutual Funds and then forget all about it. This approach would lead you nowhere and you would not be able to make profits out of your Mutual Funds Investment. Monitoring your investment decisions or investment portfolio is of prime importance as it leads you towards your goal of being a successful investor. The same holds true even for your Mutual Funds Investment. You need to analyze and monitor your Mutual Funds Portfolio.

It can be concluded that make sure the mutual funds your investment must meet your financial goals and aren’t full of fees and charges, such as loads, that will sap your return.  Watch who has managed the fund and how long they have run the fund and what they have invested themselves in the fund.  Take a close look at the prospectus to see the underlying investments.

In all, mutual funds are a great way for a person to invest in a broad variety of investments without having to buy each individual security. Chosen carefully, mutual funds can help create and grow wealth for years to come. It’s time to work on your mutual funds portfolio and make your portfolio simpler and manageable.