Mutual funds are a great option for making stock market investments with regular small contributions. One of the best parts of mutual fund investments is the services of the fund managers. To trade in mutual funds, includes hiring professionals by mutual fund companies for fund management to create index-beating returns. However, as an investor, you must not entirely depend on fund managers, as it might backfire.
Effective Ways To Boost Mutual Fund Returns:
Generating the best returns from your mutual fund investments goes beyond purchasing the best-performing funds using a share market investment app. As per experts, analyzing the performance of a portfolio regularly can help you better handle your investments. Some of the best ways to improve your mutual fund returns include the following:
1.Choosing funds directly
Selecting a direct plan on 5paisa Capital helps investors generate 1-1.5% additional returns on investment. Direct plans are better than regular mutual fund investments as they let investors avoid making brokerage fee payments to fund managers, which is around 1–1.5% of the size of your investment. By investing in a no-load fund, you can create more money than in regular funds.
2.Prefer SIP over lump sum
Mutual fund investments offer benefits from a systematic investment plan (SIP). It is a smarter way to generate units with regular payments. Unlike a lump sum, an SIP need not require investors to analyze the market. Hence, to boost returns with a lump sum investment, an investor has to wait for the market to reach the bottom before investing money in mutual funds in India. As it is challenging to study the market, investors should select an SIP because it works on money cost averaging.
3.Prefer investing in index funds
These are low-cost, passively managed funds. However, the major advantage of index funds is that they are created to copy the market index performance. This also helps avoid manager risk, which can result in an actively managed fund creating a lower return. Hence, low-risk, low-cost funds come with a great benefit over actively managed funds, which completely depend on the fund manager’s decision.
4.Diversification
By leveraging diversification in your mutual fund investments, you can minimize risk and boost the returns from multiple asset classes. Investors can choose diversification according to their risk-bearing capacity and invest in Mid-cap, small-cap, or large-cap mutual funds.
5.Equity versus debt investment
Debt funds create predictable and risk-free returns. However, equity funds invest in company shares and are subject to market risks. Mutual funds provide exposure to both equity and debt, letting investors choose according to their risk appetite.
However, with the declining risk appetite of an investor with age, a senior investor allocates more funds to debt options, which eventually creates a steady return.
Conclusion:
Mutual fund investors are responsible for frequently monitoring the performance of their investments and diversifying or relocating funds as needed. Experts advise reviewing the investments once or twice a year to check if they are on track. Hence, in case their HDFC mutual fund performs less than expected, investors must check the performance of the industry before executing an exit plan.