HOW TO MAXIMISE MUTUAL FUND RETURNS?

Mutual funds are a great way to invest your funds. Even if you are willing to start with a small sum, you can gain many benefits like professional management, more than average returns among others. Nevertheless, as an investor, you should also follow some strategies to generate more corpus by investing in mutual funds wisely. 

In this article, we will discuss and understand the ways through which investors can maximize their mutual fund returns. Let’s get started with the same.

DIVERSIFICATION OF THE INVESTMENTS 

The best and ideal way to generate optimum and maximize your risk-adjusted returns from mutual funds is to build a diversified portfolio consisting of multiple asset classes. This will assist in maintaining a steady return. Experts have quoted that the asset allocation and fund selection has to be done on the basis of your financial goals, risk appetite, and investment horizon. Nevertheless, while doing so, investors should avoid investing in too many funds as it might be complex to track their records and performances. 

AGE-WISE ASSET CLASS INVESTING 

Investors should make their investments in debt and equity funds as per their age. So whatever the current age is, they should subtract in from 100 and invest the same percentage of the funds in equity-related instruments. Nevertheless, slight variation in percentage can be made as per one’s risk appetite. 

If an investor is a little aggressive, then they can increase the equity concentration to a slightly higher level. The right way to invest is to divide your investments between equity and debt. The percentage of debt allocation can be calculated by following the thumb rule which will be your age subtracted by 10. 

OPTING FOR REGULAR PLANS

In regular plans, the mutual fund distributor gives you expert advice and investment strategy suggestion through which you can actually boost up your returns substantially in return for a slight fee that is adjusted from your mutual fund returns. They also help you to make the best investment decision based on investor needs and feasibility. 

GO FOR THE SIP MODE OF INVESTING 

Systematic Investment Plan or SIP is an investment strategy that helps an investor to ensure they are investing regularly and in a disciplined manner. It also helps to reap greater benefits from the compounding effect too! Investors can invest start with an amount as low as Rs 500 per month, which makes the strategy one of the most attractive and ideal modes to pool investors' money in the stock markets. 

PERIODIC REVIEW OF THE PORTFOLIO

Investors must ensure that they are taking a periodical review of the portfolio performance and also, rebalancing their portfolio according to the change in the risk appetite, age, and financial objectives. By doing this, the investments remain active as per the market scenarios which helps in generating good returns on the overall portfolio throughout the investment period. They should remain invested until the financial objective is achieved successfully. 

STICK TO CONSISTENCY

Past performance may not be a certain guarantee of future returns, but it is surely indicative. Mutual funds that have been delivered consistently on a 3 to 5-year CAGR basis, have a strong demand. It is very unlikely that these funds will drop suddenly and won’t deliver and start underperforming. Avoid mutual funds with very low AUMs since that can be a reason for the risk of liquidity. Usually, long-term leaders are consistent over time. 

KEEPING A BULLET PLAN READY 

You must be wondering what is a bullet plan? It is a fixed amount you invest in a liquid fund as a backup plan. Then investors create a rule that each time the index corrects 10%, you move part of these funds into equity funds. These SIPs will continue as usual, but if investors add this bullet idea to the SIPs, it can help buy lower. This tends to enhance returns on mutual funds in long term. 

PLAN EXIT TO MAXIMIZE POST-TAX RETURNS

Investors earn returns post-tax at the end of the day. Capital gains above Rs 1,00,000 per year are subject to LTCG, so plan your exit accordingly. In case investors plan to redeem the SIP after 5 yrs, try to spread profits across years so that they get a bigger benefit of tax-free gains. This can boost their post-tax returns.