Mutual funds have successfully become one of the most popular investment options among investors due to the several mutual funds benefits enjoyed by investors such as hassle-free and convenient mode of investment, professional management, tax benefits, liquidity, etc. But are they devoid of risk? Well, no investment option is entirely risk-free. Just like different types of investments, mutual funds are also exposed to certain risks. However, there are certain ways in which you can decrease the exposure of risk of your mutual fund investments. In this article, we will understand how you can reduce mutual fund risk of your investment portfolio.
5 mantras to reduce mutual fund risk
If you are looking to reduce the risk exposure of your investment portfolio, here are 5 mantras that can help you achieve the same:
- Diversification of investment portfolio
Diversification of investment portfolio is the key to reducing risk exposure of an investment while investing in mutual funds. As mutual funds invest in different types of securities such as fixed income instruments, equities and equity-related securities, money market instruments, gold, etc. they help to diversify an investor’s portfolio, making them one of the most sough-after investment options among retail investors.
- Avoid overlapping of mutual fund schemes
There might be times while choosing the right mutual fund schemes for your portfolio, there is an overlap of sectors or themes, even though the mutual fund investments are channeled through varying AMCs (asset management company). This results in concentration of a particular type of asset class or theme or sector which could result in opportunity cost of the portfolio in other themes or asset classes or sectors or categories that could have added value to the investment portfolio.
- Periodic monitoring and reviewing of mutual fund investments
It is important that an investor periodically and regularly monitors and review their investment portfolio to keep a track of the performance of their investment portfolio and their progress towards achieving a specific investment goal. This will also help an investor to identify any under performing assets, if any and take necessary steps that will benefit their portfolio.
- Taking the services of a financial advisor
With different types of mutual funds available at the click of a button to an investor, it is easy to get overwhelmed. Investing in the markets require a certain knowledge and time about the financial markets. Not every investor might have the time or expertise required to make the right investment decisions for their portfolio. This is when financial advisors come into picture. A financial advisor has adequate experience and knowledge to make the right investment decisions on behalf of an investor.
- Investing in mutual funds through SIPs
Systematic Investment Plan, commonly referred to as SIP is an investment tool that allows investors to invest in mutual funds in a systematic and disciplined manner. Several investors make the mistake of assuming SIP as an investment product; however, it is merely an investment tool. SIP investments allow investors to benefit from the concept of rupee cost averaging and the power of compounding. What’s more, with the help of SIP investments, an investor does not need to time the markets, an investment concept which is often frowned upon by mutual fund experts.
Thanks to advancement in technology, you can now invest in mutual funds online from anywhere in the world. So, what are you waiting for? Invest today to enjoy benefits of mutual funds tomorrow. Happy investing!