5 New Year Resolutions For Mutual Fund Investors

And it’s that time of the year again! The New Year is upon us, with promises of abundance, prosperity and growth. What it also brings, is something we’re all too familiar with- New Year Resolutions. Whether they are about having new experiences or meeting personal goals, there is hardly anyone who enters a new year without resolutions. It is just the same for investors- they head into the new year, resolute to achieve their financial targets and meet their long-term wealth milestones.

The satisfaction of these investors multiplies when they follow the financial road map they have chalked out and the results are in line with what they had envisaged. If you are a mutual fund investor or someone about to start his investing journey, here are five new year resolutions to follow to further your financial well being in 2020. 

Make  informed decisions 

As a mutual fund investor, or someone looking to invest in mutual funds, knowledge about the product is your biggest asset. This year, make sure you do the research behind each fund or fund category on your own and only take a decision if you are thoroughly satisfied that it is in your best interests. For instance, don’t keep adding new funds in your portfolio because your peers recommended it or because the ratings are good. This may lead to  this may lead to overdiversification and hurt your overall returns. Assess the funds in your portfolio and then take a call based on their performance. Similarly, if you have been investing in regular mutual funds via an agent, a little bit of reading and understanding about fund selection can allow you to switch to direct funds and reap better returns. There are plenty of educational resources that can help you get acquainted with mutual funds and the various “hows and the whys” attached to them, use them to make informed decisions.

Monitor your mutual fund investments vis a via the overall portfolio 

A vital part of investing in mutual funds is reviewing your portfolio’s performance post investment at regular intervals. This year investors should make it a point to delve deeper into their mutual fund investments so that they are aware of what is happening in which particular fund. This is true for equity as well as debt funds. Take a look at the past performance of your funds. If they have been giving poor returns consistently, you can stop investing in them and direct your money to a better performing fund in the same category instead.  Also make sure your portfolio is not overcrowded with funds from the similar categories and have only 1-2 top performing funds from each category to avoid overdiversification of your portfolio. Regular tracking of your investments will get your portfolio rid of the deadweight of underperforming funds so that your overall financial objectives are met with ease.  

Hold A Long Term Perspective With Equities 

A decision to invest in mutual funds must consciously be made after understanding the product features, benefits and the risks associated with it. It goes without saying that the view should be long term so as to make the most of what the investment offers. For instance, investing in equity mutual funds must be done with a long term perspective in mind via the SIP route. The longer time horizon evens out the losses that would have occurred due to short term market fluctuations with gains. Going the SIP route frees you from the hassle of market timing. Needless to say, when it comes to investing in equities, please understand the inherent nature and risks associated as well as the rewards and do not take hasty redemption decisions based on temporary market movements. Investors this year would do well by giving their funds ample time to stabilise and perform.

 Increase Investment Limit Each Year. 

That an investor has made a start is great because mutual funds are one of the most effective tools available for creating wealth. But at the same time, it is important to note that the size of the corpus depends on how much is being invested. So, even if you are putting away a sizeable amount as per the portfolio allocation, effort should be made from this year to invest an additional 10-15 % as a step up contribution plan. This will allow you to reach your goals faster. A small addition will lead to a snowball effect and  assist the wealth creation process. 

Diversify Your Portfolio 

Investors should take a closer look at their portfolios to ascertain if there is a need for change in allocation .  Diversification is the process of spreading your investments across asset class so that your portfolio is not exposed to only one type of asset. Diversification can go a long way in reducing the volatility of your portfolio and limit your risks. For instance, if you have only equity funds in your portfolio of one type, you can make your portfolio a diversified equity one by adding  other equity types as well. Similarly, you can allocate a part of your assets to liquid funds to balance out the risks associated with equity. They are also a great investment option to raise corpus for short term goals. To further hedge your risks, you can also allocate a portion of your portfolio to gold mutual funds ( about 5%)

New year is often the time for taking control of personal, professional and financial life. Investors should stick to their goals, be disciplined with their investments and flexible in their approach. The new year should act as a perfect platform to learn, understand and for taking control of your mutual fund investments.

The author is the Co-founder and COO, Groww