Introduction
A mutual fund portfolio is basically like a whole pool of money where the money is managed by fund managers who are professionals. It collects money from various investors who have a common objective behind an investment and invests the money in various securities. But whenever it’s about investing our money somewhere it is quite natural to become a bit skeptical, after all, mutual funds do have various kinds of risks.
Risks Associated with Mutual Funds
There are various advantages and disadvantages to a mutual fund portfolio. Some of the key advantages of mutual funds are that they are managed by professionals so comparatively, there’s a low risk, and also investors can get a good amount of benefit in the long run. Moreover, mutual funds are highly liquid so that’s another advantage of it. It has diversification due to which an investor can invest in various sectors.
Apart from advantages, there are also many disadvantages that are associated with mutual funds. Mutual funds usually have extra costs associated with it which might seem like an extra burden to people. Also, some mutual funds have a “lock-in period” which means that the investors cannot sell their investments before the maturity date.
Managing the Risks
You can reduce the risks by selling aggressive stocks and buying defensive stocks. If you’re not able to buy stocks at a suitable price, then you can hold them. You can reduce the risk by removing concentration risk from the equity portfolio. Remove the equity funds which have less than 5-6 percent weight. Don’t keep too much of Mid-cap funds and small-cap funds. Exit the consistent underperformers.
Diversify your mutual fund portfolio with Equity, debt, and gold funds. To save tax you can have an ELSS fund as well. One should invest in different sectors rather than Investing in one because if one doesn’t go well then the other can help with it. Investing through SIP and STP can reduce the risk. You can also hire investment experts. To deal with emergencies, you can ensure adequate liquidity.
Once you achieve your goal you can move to safer investment options. You should avoid investing in lumpsum amounts. You should avoid overlapping schemes. You should monitor your investments from time to time which will help you in keeping track of the mutual fund portfolio. you should select funds based on your risk appetite. Due to lower NAVs, one should avoid investing in NFOs.
Conclusion
Managing risk in your mutual fund portfolio is crucial for achieving long-term investment success. By diversifying your portfolio, monitoring your investments, and staying informed about market trends, you can mitigate risk and maximize potential returns.
