A mutual fund is an investment vehicle that pools money from multiple investors who share a common financial goal. The pooled funds are managed by professional fund managers who allocate investments across a diversified portfolio of stocks, bonds, and other securities. Mutual funds are a popular choice among investors because they simplify access to a range of investment strategies, allowing individuals to benefit from expert management and reduced risk through diversification.
Mutual Funds Management
Mutual funds have become a popular investment choice, especially among millennials. New-age investors are now more aware of savings, retirement planning, and wealth creation.
However, once you build a mutual fund portfolio, it's vital to manage it using the right mutual fund investment strategy. Investors and fund houses apply different investment strategies to maximize returns and meet long-term goals through a suitable mutual fund strategy.
If you’re not managing the portfolio yourself, monitor the investment strategies your fund manager uses. Ensure it aligns with your risk tolerance and delivers expected rewards. After all, mutual funds offer an investment solution to investors, but choosing the best investment strategy and seeking timely mutual fund investment advice is key to success.
Mutual Funds Investment Strategies
Moving further, let’s discuss some of the most widely used Mutual Fund Investment Strategies-
1. Market Timing Strategy
This strategy depicts the ability to get in and out of sectors, assets or relevant markets at the most appropriate time. Ideally, one would always prefer to buy a stock at a lower price and sell at a higher price.
However, no one can precisely predict the market but experience plays a key role here. It is essential to use market-timing indicators like studying Financial Ratios, the company’s Balance Sheet Profit and Loss account, etc. These factors offer investors an advantage over the others. It also enables them to understand where the markets are heading.
Investors must strategically use this method so that they do not end up doing the opposite of the ideal scenario, i.e., buying high and selling low. They must always balance their emotions while making investments. This, in turn, demotivates investors and they start believing that market timing does not work.
One must remember that it takes time to understand the market. Thus, you must practice this strategy properly so that investments in mutual funds can be made at the perfect time.
2. Buy-and-Hold Strategy
One of the most popular strategies in Mutual Funds management is the Buy-and-Hold strategy. This strategy dictates that one must buy their investments and hold onto them for a long time. The most important thing to do in this case is to not get affected by the market trends and not worry about market fluctuations.
It is wise to follow this strategy because irrespective of the market’s rates, your profits will outweigh your losses. Thus, it becomes the best strategy for long-term investors. It is also one of the simplest strategies to adopt, as it involves minimal effort and only timely monitoring.
3. Investing through SIPs and STPs
Investing through Systematic Investment Plans (SIPs) is one of the best methods to invest in mutual funds. It is because SIPs involve investing a particular amount at regular intervals in any mutual fund scheme.
This method is beneficial because one can avail the benefit of Rupee Cost Averaging. By using this method, one can buy more units when the market is down and vice-versa. It ensures that one gets more mutual fund units at a low price in the long run.
Another strategy for investing in mutual funds is through STPs, i.e., Systematic Transfer Plans. STPs involve the transfer of money from one mutual fund to another. Under STPs, investors can fix a pre-determined amount from one mutual fund scheme to another at fixed intervals.
An interesting point to note is through STPs, one can even avail of the benefits of Rupee Cost Averaging.
4. Investing according to your Risk Appetite
One of the most generic strategies that one must apply before making any investment is to know their risk tolerance level. The same applies to mutual funds’ investments too. As a prudent mutual fund investor, it is important to keep mutual funds balanced according to one’s risk appetite.
The best way to lower the risk is to, invest in multiple asset classes and sub-classes. This strategy also helps in creating a diversified portfolio.
In addition, one must not leverage to invest in mutual funds. We must use a balanced approach so that they are not highly affected in times of market downturns.
5. Performance Weighting Strategy
According to this strategy, you must relook at your portfolio from time to time and make adjustments to it by assessing the performance of the funds. It enables investors to ideally gain the advantage of the best scenario and book profits.
This strategy lies somewhere in between the Market Timing and Buy-and-hold Strategy. According to this strategy, the ultimate result will be observed by investors after a few years of monitoring and performance weighting.
Conclusion
It has become very important to adapt the aforesaid strategies to efficiently manage your portfolio. Adoption of the right strategies requires discipline and leads to successful mutual funds investment.
One can choose the most suitable strategy according to their financial goals, investment needs and risk appetite. But, you must ensure that your portfolio is not left neglected for a long period as it can leave an adverse impact.
Get assisted by our investment experts at mastertrust and get all your queries related to mutual fund investments and strategies cleared.
