Hello Readers!

Investors of mutual funds mostly prefer to invest in Equity mutual funds, as it has a proven track record of giving inflation-beating returns over the long term. Through Equity mutual funds, its investors take part in the development of the most valuable economic entities of a nation – it’s companies and corporations and grows their money along with the growth of these companies.

Equity mutual funds make the task of investing in Equity Asset Class much easier. At the start of their investment, investors generally pick a single fund to invest and concentrate their investment strategy on it only. This strategy of investing might work out for some but to create a strong long-term solution for your long-term objectives, you need to create a strong portfolio. A portfolio, consisting of the right number of equity mutual funds help you create a good corpus for your various long-term financial goals.

Let us know why creating a portfolio is more beneficial than just a fund or two without any specific objective.

Reason Number 1: A portfolio is better aligned to your investment approach rather than a single fund

A proper financial plan is prepared after analyzing your goals, objectives, income, expenses, risk, needs, and the time frame for which you can stay invested, or the time you will take to achieve your goal. A single mutual fund can’t be taken as a source to create a corpus for your various goals like short-term or long-term. Every mutual fund scheme is oriented with different levels of risk, and you cannot assign all your short-term or long-term goals to a single fund. If you want to manage the risk effectively, you need to plan your portfolio with funds for different growth requirements.

For your long-term goals add the right number of equity mutual funds and for your short-term requirement, add debt funds in your portfolio.

Reason Number 2: Exposure across sectors within equity

A single Equity Mutual Fund cannot give the benefits from the growth of all big, middle and small companies in India, and for good growth of your investment for your goals, you need both big and mid-size companies in your portfolio. Most mutual funds invest in a specific proportion in different sub-asset classes and market categorizations depending on their investment objective. This means you must have at least one large-cap and one multi-cap equity fund in your portfolio to ensure exposure to growth opportunities from all angles.

Reason Number 3: Hedging your investments across funds and AMCs

While planning your investment, you must spread your investment in different fund scheme of different Asset Management Companies, so that you won't get dependent on a single fund or single AMC, for your goals. This has dual benefits, one, it makes management easier, and second, it saves your investment from sudden events that might cripple any one organization.

Reason number 4: Funds may get misaligned with investment objectives

Sometimes due to change in the fund manager the objective and investment style of a fund changes which ultimately hits your investment goal or objective. It may happen that the fund you started investing with won’t match your personal investment objectives. This means that now you need to reshuffle your investment and shift to a fund that is more aligned with your plans and objectives.

Through your journey, you may get new goals at different stages of life, and you need to add specific types of funds top attain these goals. That’s why a portfolio becomes a necessity rather than relying on a single fund to do it all.

In order to create a good corpus from your Equity fund investment, you need to construct a portfolio with the right number of funds aligned with your goals. Also adding funds with different risk and objectives in your portfolio is necessary, but don’t overdo it. For most long term objectives, a portfolio with minimum 4 and maximum 8 equity funds across sub-asset classes is considered as ideal.

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).