I want to build my investment Portfolio. I can invest Rs 35,000 through the mutual fund's SIP route. Is it the right strategy? How will the constructed portfolio be built? Please guide.
Reply by Mayank Bhatnagar, Co-founder & COO, FinEdge.
Investing systematically through an SIP is a very effective style of investing. An SIP involves investing a fixed amount in mutual funds at regular intervals. Not only does this help in averaging out your investments, but it also helps build discipline towards your savings and investments. It is wonderful that you want to invest Rs 35,000 through the SIP route but what is more important to note is that starting an SIP is easy but continuing it, especially in difficult market conditions is the most critical aspect of investing. A study by SEBI stated that only 3% of Mutual Fund units continued for more than 5 years and that is why investors fail to create wealth in spite of markets giving stupendous returns. To address the issue of early withdrawal of investments and offset the impact of compounding, it is advisable to adopt a structured approach.
• Understand your cash flows: Have a financial health check done and keep an eye on your discretionary spending. Make sure that you maintain healthy personal financial ratios like the savings to surplus and debt to income ratio.
• Define Your Goals: Clearly outline your financial goals, such as retirement, your child’s education or buying a house. This will help determine your investment horizon and risk tolerance and help you to invest with purpose.
• Risk and Returns: Risk and returns go hand in hand and to maximise your investments, make sure that the risk of investing is mitigated by goal orientation, investing tenors and staggered investments.
• Diversification: Diversifying investments is another risk mitigation tool against concentration risk on one asset class or a security. Mutual Funds are great vehicles to achieve diversification by nature and the number of securities that a mutual fund holds.
• Product: The outcome of a great investing process lies in the product that is recommended. Ultimately, the investor’s funds are deployed in these instruments and these investments must be in complete alignment with his goals. The funds that one is investing in must also have a consistent performance track record with a strong risk management framework.
• Review and Rebalance: Regularly review your portfolio to ensure it aligns with your goals and risk tolerance. Re-balance, if necessary, based on your life stage or stage of goal achievement.
It is essential to stay invested for the long term and not be swayed by short term market movements. Consult with an investment expert and create a customised portfolio based on your goals and objectives.
(Views expressed by the investment expert are his/her own. E-mail us your investment queries at askmoneytoday@intoday.com. We will get your queries answered by our panel of experts.)