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How To Invest In Balanced Mutual Fund Portfolio

A balanced portfolio is all about managing risk. A balanced portfolio spreads the risk between equity and debt, thus helping the investor to ride the equity wave.

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Sashank Desai is an avid mutual fund investor. His portfolio consists of 3 Midcap funds, 2 Smallcap funds, 4 Largecap funds, 3 multi cap, and 2 debt funds. Shah is in the early 40s having a moderate risk profile. Of late he is hearing a lot about the importance of having a balanced portfolio. This has made him nervous. “Is my portfolio considered a balanced one?” this question has been plaguing his mind especially at a time when markets are trading at historic valuations.

Ideally, investors like Desai should invest with clear goals in mind. Remember, the returns from mutual funds attract capital gains; the investor also has to account for inflation while planning his investments. For example, today if a person can retire with the corpus of Rs 10 lakh, a decade later he will need Rs 45 lakh to maintain the same lifestyle considering 8% inflation.  To achieve this goal he needs to invest Rs 5926 per month for 20 years with an annualized return of 10% per annum.

Investors having a moderate risk profile should focus on building a multi-cap fund portfolio. If the investor is willing to take some risk, he can consider investing in Largecap funds too. This strategy helps him to reduce his risk considerably. Though Midcap and Smallcap funds have the ability to generate above-average returns, they are not recommended for investors having a moderate risk profile.

The problem with Shashank Desai’s portfolio is that a 40% portfolio consists of high-risk investments. Often the investor, in his enthusiasm, invests in funds as if they are collecting some souvenirs. These investors are on buying spree and often end up buying the fund on whim eventually cluttering their portfolio.

When it comes to investments, individual investments do not matter. What really matters is how best the investor can diversify and build a quality portfolio which helps to achieve his goals. While investing his role is not be a collector of funds, he has a more important role to play; that of allocator of assets.  Instead of gunning for high returns, he should aim for moderate returns with low risk, something which perfectly aligns with his investment personality.  

A balanced portfolio is all about managing risk. A balanced portfolio spreads the risk between equity and debt, thus helping the investor to ride the equity wave. Multicap funds invest in companies having different market capitalizations. Multicap funds enjoy more flexibility compared to Midcap or Smallcap peers.  Multicapfunds are ideal for investors having a moderate risk appetite. The biggest advantage of Multicap funds is their operational flexibility. For example, in the booming market, the fund manager allocates more funds towards Midcap and Smallcap companies and during volatile times he may shift his exposure to large-caps. Thus Multicap funds pursue a strategy which keeps risk in check. Even moderate risk-takers can enjoy decent returns during normal market conditions and protect their capital during volatile times.

 The investor should also invest around 20% of his investment in liquid funds. Some liquid funds offer “insta redemption,” this can be used to meet emergency or have funds handy when market witnesses huge volatility. Thus, a balanced mutual fund portfolio not only offers an opportunity for growth of capital, but it also takes care of unforeseen emergencies ensuring complete peace of mind for the conservative investors.

A mutual fund investment, whether Multicap fund or liquid fund, ensures the steady growth of portfolio over the years. As always, the investor should seek the help of a qualified financial adviser who would carefully analyze his risk profile and suggest suitable schemes for investment.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

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Abhinav Angirish

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