Mutual fund investors often make a mistake in the pursuit of earning huge returns. He invests all his money in the best performing fund. That becomes a risk for them. Because if that fund does not perform as expected, then all the money in front of them can be lost.
An easy way to avoid this is to diversify your investments. That is, invest your investments in different funds and asset classes like stocks, bonds, gold etc. “In this case, if one asset in your portfolio is not growing, or is at a loss, then the rest of the portfolio can make up for the loss. Or at least it can do enough to give you an overall profit,” said one investment manager. There will be no loss on your investment.”
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Although the number of funds depends on risk appetite or other factors, a basic mutual fund portfolio can be of these 3 funds – 1 each in the debt and equity mutual fund category and one in the passive investment category, suggested Sharma. Given, and thus, he can choose Parag Parikh Flexi Cap Fund, ICICI Prudential Ultra Short Term Fund and UTI Nifty Index Fund.
The investment manager said that how many types of funds you should invest in, it depends on your risk appetite and other aspects. However, an ideal mutual fund portfolio must include three types of funds. One debt category, one equity category and one passive investing category. Along with this he suggested that investors can choose Parag Parikh Flexi Cap Fund, ICICI Prudential Ultra Short Term Fund and UTI Nifty Index Fund .
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Why the investment manager asked to include at least these three types of funds in the portfolio, let us understand it with an example. Suppose, an investor has the capacity to invest Rs 15,000 every month and decides to invest this money equally in the three funds mentioned above for 5 years.
Parag Parikh Flexi Cap Fund: In the last 5 years, this fund has given a return of 57.64%, i.e. an average return of 11.5% every year. Morning Star has rated this fund as 5 stars. In this way, by doing SIP of Rs 5000 in this fund for 5 years, he would have earned Rs 4.06 lakh.
ICICI Prudential Ultra Short Term Fund: This fund also has a 5 star rating from Morning Star. The fund has given an absolute return of 22% in the last 5 years, i.e. an average return of 4.4% every year. A SIP of Rs 5,000 in this fund for 5 years would have become Rs 3.34 lakh by now.
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UTI Nifty Index Fund: The fund has given an average return of 55.9% in 5 years i.e. 11.18% every year. This fund has also got a 5 star rating from Morning Star. In this, by doing a SIP of Rs 5,000 for 5 years, the investor’s money would have become Rs 4.03 by now.
Overall, the investor’s money would have grown to Rs 11.43 in 5 years.
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