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Mutual funds offer a wide range of fund schemes, with different features, like some are long-term funds, some short-term funds, while some are tax saving funds, and many more.
Typically investing in mutual funds offers its investors a wide option of schemes to diversify their portfolio with. Recently in the last some months, if you have noticed, they have realized that the focus is once again back on NFO’s (New Fund Offer).
In fact, as per data, in the last 6 months of 2021, there have been around 34 NFO’s launched by different mutual fund houses in India. There have been variants based on the Nifty index, ETFs, schemes with specific market capitalization mandates, and so on.
In fact, there was an NFO launched that invests in companies dealing with the impact of climate change. This was probably the first time, that this kind of NFO was launched.
Experts advise you to invest in NFO’s as they have the potential to give good growth to your invested money, but, here the point to argue is, should you invest in all-new offers that come your way?
We know that several schemes are added to our mutual fund investment portfolio to diversify, which typically helps to reduce the risk in a portfolio.
Especially when it comes to long-term investment, experts advise adding a good number of equity funds to your portfolio, to reduce risk and enhance portfolio returns. However, if diversification is not done properly may not prove beneficial to investors.
So, question is, how to execute the diversification process, and how many mutual fund (MF) schemes must you really hold? Let us see.
Does The Scheme Add Value To Your Portfolio?
This is the very first question you must ask yourself before you add any scheme to your portfolio, for diversification.
Look at the portfolio of the schemes of the same category, you will probably find several companies common. This is especially in the case of large-cap funds.
Just think if you add 3-4 funds having a part of their investment in the same companies then what is the point of diversification!
Experts say, before you add a scheme, it is necessary to check at least the top 15-20 holdings so get a fair idea of common holdings among the different funds.
Typically, investors are recommended to follow their goals objective to diversify their portfolios. Investors can go adding up to two schemes from any category of equity mutual funds, as per their goals, and can decide several schemes as per the number of their goals. Usually, 8-10 funds are enough for most investors to plan for their goals
Add Funds With Low Co-Relation!
Experts say to look for funds that follow different investing and management styles. This is the best way you can look for diversification.
For example, an Axis Flexicap Fund follows a growth style of investing, while the Franklin India Flexicap Fund follows a value style of investing. So, these funds are likely to have more differences in their stock holdings
One can also think of adding international equity mutual funds to their equity fund portfolio, as it not only help diversify, but also let the investor get ample benefits from the economy of different countries.
It is also advised that do not confine your diversification to just equities. Invest across various asset classes such as fixed income instruments, gold, equity, small-saving deposits, cash, etc., which offer different risk-return potentials.
For any kind of query, you can contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.
Happy Investing!
(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).