Every investment scheme comes with its share of risks and rewards. Both works together to give you the returns on your funds. Hence, you need to bear the uncertainties to let your income soar. The same goes for Mutual Fund Investment. It gets exposed to various risks as it is a market-driven instrument. However, the appointment of fund managers is a relief. They are experts in the field who handle your investments.
They make decisions based on altering market conditions. This results in saving your investments from the brunt of extreme volatility. Despite the expertise, understand the risks when you invest in Mutual Fund. This enables you to make the right investment decisions based on your financial goals. Although you cannot eliminate the risks, there are methods to reduce them.
Build diversified portfolio
You can spread your investment in different asset classes. Mutual Funds are a basket of securities comprising varied assets. Leverage this while selecting the schemes. Avoid having all your investments in the same asset class or a similar instrument. It is best to get exposure to multiple asset classes with varied sectors. For instance, balance your portfolio with different types of Debt, Corporate, and Equity Funds.
Handle asset allocation
This relates to balancing the risk and reward. Asset allocation works in alignment with diversification. Therefore, choose the right assets based on your financial goals to implement them. Consider various instruments like Equities, Real Estate, Gold, Government Bonds, Debt Funds, etc. Check how they match with your short and long-term goals.
Monitor regularly
The steps mentioned are not one-time activities. They require a periodical review to track the progress and make necessary changes. Identify the underperforming assets and remove them in the reviewing process. Replace them with new schemes like ELSS (Equity Linked Savings Scheme) to strengthen your portfolio. Similarly, if certain assets perform well, keep a close eye on their potential to calculate estimated returns.
Choose suitable investment methods
Besides selecting schemes, choosing the proper investment method is also essential. It affects your convenience and financial planning. Most people wait until they have accumulated corpus to start investing. But Mutual Funds have changed this significantly with the Systematic Investment Plan. They enable you to invest a specific sum through Mutual Fund apps periodically. The minimum amount is as low as Rs. 500.
Identify risk appetite
Another aspect of reducing risks is identifying your risk tolerance level. Risk is subjective and means different for everyone. What might seem risky to you might be the bare minimum for someone else. Hence, choosing the recommended low-risk schemes is not the ideal approach. Instead, research-based on your goals and risk appetite while selecting assets.