Mutual Fund Portfolio Building – An Art!

By Rahul Pithadia : Mutual Fund Investments are always considered the last option for investments. One of the reason being difficult portfolio building. A myth surrounds people’s mind that portfolio management is one of the tedious tasks in mutual Fund industry. To some extent it is true as it the most vital component if one wants to get beneficial through mutual funds. Portfolio Building is an art but can be learnt and understood if tried to do so.

A Portfolio refers to a mixture of funds of different asset classes that may be Equity oriented, Debt oriented or Hybrid Funds. A varied portfolio brings diversity to your investment and suppresses risk over different sectors in the market.

Also, the myth can be proved wrong because the base of your portfolio depends on your own risk profile. Unlike Bank FDs which have stubborn conditions to follow or Insurance Policies which have various terms and conditions, Mutual Fund Investments are easy without any strict rules.

 Diversification is the USB of Mutual Funds. Thus a varied portfolio spreads risk and gives you an average compounded return. A portfolio has to be built in a way that you get best of the returns even after averaging and risk to the minimal.

Some tactics has to be used to create a complete, correct and a balanced portfolio. A portfolio depends upon the risk bearing capacity of the individual. Different risk holders have different portfolio.

A gist of it will be:

If Mr. Ram wants to invest –

  • Amount: Rs. 5000
  • Type: Lump sum
  • Risk: Moderate to High
  • Expected Rate of Return: 12% – 15%
  • Tenure: 10 years

The suggested portfolio will be -

  • 45 % in Equity
  • 25% in Hybrid
  • 30% in Debt

This will give the client a balanced average return

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