Investing is an important aspect in order to secure a strong financial future. Be it for the purpose of wealth creation or for financing your requirements, you need to save so that your dependency on credit like borrowing personal loan or a home loan is really not required. As is the rule, for a healthy portfolio growth and for benefiting it with robust returns, you as a prudent investor, need to link your financial requirements with your investments.
It simply means that, if you are planning to construct a house after about 10 years, it is important that you stick towards investing in mutual funds for up to 8 years by increasing your risk appetite and investing more into equities using the Systematic Investment Plan (SIP) for investing into Mutual Funds. And then use the Systematic Transfer Plan (STP) to transfer your funds to a debt fund or to a FMP so that you are protected from market volatilities which may reduce your returns by the time your fund mature. Similarly if your goal is to buy a car in the next 3-4 years, you need to set up a fund whose maturity period is about the same time or just a year before they are required, transfer the funds to a Fixed Deposit where they can earn good returns and are safe guarded from the market irregularities.
Depending on the time frame you need to decide your fund selection. If you are opting to invest for a medium term it is important that you invest in mid-large cap funds and can even consider investing in balanced funds. Depending on the fund performance you will allocate funds accordingly, but, if the particular fund’s performance is constituting a major portion of your portfolio, you need to re assess and review the portfolio at least once every year so that you can protect yourself from any credit requirements of borrowing any kind of loans like a home loan etc.
But if you are new as an investor and are wondering how to build a good portfolio, well here are some guidelines.
Giving a good structure to a portfolio is not a very difficult task. You just have to bear a few things in mind before arriving at any conclusion.
First of all you need to decide as to what is the asset allocation that you plan on. It basically means as to what proportion of your income will be allotted to a particular fund and what should be the particular fund’s asset class. You also need to account what is the duration of the particular fund. If the investment is required to be made for a long period of time, it is important that you expose yourself more to risk and watch your investments grow. If not, a balanced fund is what is required since that accounts for a good investment into both debt and equity. The funds based on their risk exposure from low to high are: —balanced funds, large-cap funds, large- and mid-cap funds, multi-cap funds, mid- and small-cap funds and sectoral/thematic funds.
The next step is to decide how to zero down on a particular fund. For this you can utilize ratings and evaluate the past performance of a particular fund.
Once you have decided the above you need to frame your goal along with the tenor of your fund. If your goal has to be achieved in a time span of three-four years opt for balanced and large-cap funds and if your goal is required to be completed in a time span that is above five years, you can opt for investing a major chunk of your income in large-cap funds and the remaining to multi-cap and balanced funds. For financial goals that are to be completed after a period of 10 years, splitting the portfolio into three parts—50% in large-cap, 25% each in multi-cap and small- and mid-cap fund investments can prove to be highly beneficial.