5 Ways to Improve Your Returns on Mutual Funds

 

Generating risk-adjusted returns from mutual funds is the key goal of every investor. This is regardless of their financial goals or market conditions. The good news is that there are a few timeless rules and tips that can help you maximise the returns. For instance, you must aim to diversify the portfolio with different asset classes. It helps achieve compounding interest while reducing the impact of market volatility. A well-balanced portfolio with the right stocks and bonds also minimises the risks of loss.
There are many similar strategies to build a better corpus from a mutual fund investment. So, here's a look at how to make better money and maximise performances.

1.     Portfolio Rebalancing

This is different from portfolio diversification. Avoid relying solely on aggressive funds to get long-term returns. Know that stocks can outperform bonds and cash over the long term. You can consider 80% of stock funds and then balance the risk with 20% bond funds.  Try to remove the ‘loss-makers’ in your portfolio. Create the right mixture of debts and equity funds. Make sure every move is as per your age, financial goals and risk appetite. All of these together can help build a strong mutual fund portfolio.

2.     Pick SIP Mode

Establish a systematic investment plan at your mutual fund company in India. It helps ensure regular and disciplined savings. You can reap the benefits of the power of compounding where you earn interest on the interest in the later years of investment. Investors can start with as low as ₹500 on a monthly basis which makes it quite affordable and convenient. No SIP can generate a full-proof positive return and is subject to some market volatilities. But make sure not to stop the SIPs even if there is a market dip and remain invested.

3.     Frequent Review

Keep a track of your fund’s performance every two to three months. It helps the investment stay aligned with the current market movements. You can expect a decent return from your portfolio throughout the tenure without dramatic changes. Checking the portfolio is all the more crucial if you have short-term goals. It can spread your risks, help the investment do well for itself and boost the chances of generating the desired returns.

4.     Know the Tax Laws

You must have a clear idea of two important laws before looking for mutual funds to invest in: Long-term Capital Gains Tax (LTCG) and Short-term Capital Gains Tax (STCG). This is necessary since a tax can eat into your returns. Check the tax slabs that are active before redeeming the investment. Have a clear idea of how different mutual funds are taxed as per their type and investment holding period. Talk to a financial advisor to avoid any pitfalls.

5.     Keep it Simple

The financial market is dynamic but not complicated. Know where you are putting your money and research and analyse the instruments continuously. Try to adapt to changes and learn about your assets. These will help you stay at par or above other investors and increase the odds of seeing your portfolio bloom over time.

Mutual fund investment has the potential of offering excellent returns. But it is a good idea to educate yourself beforehand before taking the leap since it is subject to market risks.