Mutual Fund Portfolio – Everything you need to know

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While building your mutual funds portfolio need to use different strategies and tools. You have to consider your financial preferences to design a mutual fund portfolio. Therefore, outlining your financial goals and objectives is the vital step to build your mutual fund portfolio.

Defining financial goals

From planning a long due vacation to buying a new car, a financial goal can be anything that you wish to achieve in the coming future. Before starting to work on your mutual fund portfolio, you need to list down all financial goals. You should give yourself a realistic timeline to achieve them, as the success of your goals is highly influenced by the time.

For example, when you are in your thirties, and you are aiming for your retirement plans, then you need to give yourself a window around 20 years to save and invest.

Assessing the risk involved

All mutual fund investments are subjected to market risk. The higher the risk, the higher the returns on mutual funds. You need to determine your risk appetite to build your mutual fund portfolio because your age affects your risk-taking capabilities.

For example, you may find it comfortable to invest in high-risk-high-returns mutual funds in your thirties. However, once your approach fifties, you may want to concentrate on saving your investments.

Using Core and Satellite Portfolio Design

This is like a blueprint to design your mutual fund portfolio. As the name goes, this strategy divides your mutual funds into two parts, a core and a satellite.

Core:

  • Percentage in portfolio- 70% to 90%
  • Types of funds: Large stocks, index funds, etc.

This part concentrates on building large-cap stock funds, which comprises the largest part of your portfolio. It involves low to medium risk investments. The core is intended to stabilise your mutual funds by generating steady returns.

Satellite:

  • Percentage in portfolio: 10% to 30%
  • Types of funds: Sector funds, thematic funds, etc.

This part represents the smaller portion of your portfolio that focuses on investing in high-risk mutual funds having the potential to give your higher returns. It brings the diversity in your portfolio.

Asset Allocation

Asset allocation works on combining the different investment assets such as stocks, bonds and cash in your portfolio. As asset allocation also describe your risk-taking capabilities, they are described as,

  • Aggressive (High-risk tolerance)
  • Moderate (Medium risk tolerance)
  • Conservative (Low-risk tolerance)

Generally, more stocks in the portfolio reflect high-risk tolerance, whereas more bonds and cash reflect low-risk tolerance.

Selection of the mutual fund

You can select multiple mutual funds to build your portfolio. Nowadays, you can invest in mutual funds online. Many investment portals provide you with multiple options of online mutual funds. You can compare them based on qualities like fund fees, expenses, manager tenure etc. before selecting them.

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