Mutual Funds: Why diversifying your MF portfolio is critical in achieving returns
1 min read 14 Oct 2022, 07:52 AM ISTMutual fund investments come with several risks, but investing in a diversified portfolio minimises individual stock and bond risks
PremiumInvesting in mutual funds can help you create wealth. It is considered to be one of the best options for those looking to grow their wealth quickly. Mutual fund investments come with several risks, but investing in a diversified portfolio minimises individual stock and bond risks.
According to Amit Gupta, MD, SAG Infotech for mutual funds to achieve their investment objectives, professional fund managers must ensure that they are managed properly. “Investors with varying levels of experience can choose from a variety of mutual funds suited to their investment needs and risk appetites," he said.
Tax advantages of mutual funds
The tax advantages of mutual funds for investors in higher tax brackets are significant compared with traditional fixed-income investments. “You can invest in ELSS mutual funds to benefit from Section 80C tax benefits. Mutual funds, like life insurance plans and infrastructure bonds, are among the most liquid investments after bank deposits," said Amit Gupta.
Diversifying your portfolio
According to Dr. Ravi Singh, vice president and head of Research, at Share India, the best way to minimise the portfolio risk and increase profitability is through diversification which can only be achieved through mutual fund investment. It offers an individual investor exposure to many stocks at convenience and lower cost, managed by portfolio managers.
Gupta said that diversifying your mutual fund portfolio is critical to achieving risk-adjusted returns. Despite low markets, SIP investments tend to yield higher returns.
How to make the most of your investments?
All investments have to be looked at in the context of what your overall return objective is in the light of your risk appetite. Vivek Iyer, Partner, Grant Thornton Bharat said that a high-risk appetite would mean that equity exposure would be a good way to achieve your portfolio objective. A low-risk appetite would mean that exposure to gilts would be a good asset allocation.
In a tightening rate cycle that is underway globally, allocation to short-duration assets and defensive stocks through a balanced portfolio would be a more balanced route for low to medium-risk appetite investors, he added.
