Mutual funds are a convenient way to invest your money. You can start investing in mutual funds with small sums to get significant benefits in the long run. By investing in mutual funds, you give your money to professional fund managers who invest your money in high-return stocks and bonds. However, as an investor, you should also follow some strategies to build a corpus over time by investing your money into mutual funds.
What is a mutual fund?
A mutual fund is a financial method to invest in stocks, bonds, money market instruments and other assets. It is managed by professional fund managers who allocate the fund’s assets to produce capital gains for the investors. The mutual fund gives small investors access to professionally managed portfolios of bonds, equities and other securities. Therefore, each shareholder participates in the gain and the loss of funds.
Essential tips to maximise your mutual fund returns
Maximizing your mutual funds is the ultimate goal of every investor, but picking the suitable mutual fund over thousands of funds and schemes is very challenging. To choose a winning mutual fund and create a winning portfolio, here are a few crucial tips listed below;
Know your financial goals
It is one of the most important aspects before investing in mutual funds. The mutual fund scheme you choose must suit your financial goals. For example, investing in equity mutual funds might be wrong if you have short-term investment goals. Because the price of equity tends to change frequently in a short span of time, and if you invest for the short term, there is a chance that you might lose your money. Debt funds are a comparatively better option for short-duration because they can provide stable returns than equity mutual funds. Opting for a mutual fund because it has delivered excellent returns in the past is not a wise decision. There is a possibility that it might not offer the same return in future. That way, you are going to lose your money. So, think about your financial goals before investing in mutual funds to gain maximum returns.
Diversify your portfolio
There is a rule that you should not invest all your money in a single asset. While investing your money, you must invest in the right asset. It will also help you to diversify your portfolio. It will maximise your return by mitigating the risk. A single fund can not always give you great returns. Diversifying your portfolio can help you in this situation. For example, equity mutual funds can work in a consistent market, but when an eruption begins, it starts going down. On the other hand, gold funds work well during any outbreaks. Keep in mind that do not invest in too many funds as it may be difficult to track the performance of too many funds at a time.
Opt for high-risk options
Equity mutual funds are considered a high-risk option but can also deliver considerably higher returns. Because high-risk funds give you an exponentially higher return than low-risk funds. Such investment can help you to grow your investment portfolio in the long run.
Direct plans work best
Unless you need absolute handholding in mutual funds investment, go for the direct plans. Because they don’t have the marketing and brokerage charges, they give you a higher return. Direct plans will give you around 1% to 1.5% better returns, and in 20 years, it will make a significant return.
Invest at an early age
Start your mutual funds’ investment early to get the maximum return. You can start your investment with SIP. It will allow you to invest the lowest amount of RS 1000. Furthermore, it will help you to build a discipline of investment. And you should always pay close attention to how the market is performing.
The magic of compounding
Compounding is one of the main reasons that help to grow in long-term investment. Your invested money keeps increasing according to the applicable interest rates. Compounding is a simple but powerful concept that acts as a multiplier in your portfolio.
Keep an eye on your funds’ performance
Always keep on tracking your funds’ performance. It will help you to balance your portfolio according to the changes happening in the market. By reviewing, you can rectify the funds that are performing poorly. It is one of the most crucial elements of your long-term investment goal and will help you set new goals according to your funds’ performance.
Watch the video above by TataMutualFundIndia to know more about the ways you can increase your mutual fund returns.
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