With the year 2023 presenting new opportunities to explore, every investor wants to capitalise on the evolving market trends and secure maximum returns. However, mutual fund investing is not just about putting money into a scheme and hoping for the best. Since different mutual fund schemes come with different risks and returns, you must stay informed and make strategic moves to achieve better returns and long-term growth.
On that note, let’s discuss 4 useful strategies, explore the benefits they bring, and see how they can maximise your mutual fund returns.
- Diversify your portfolio
By investing in different asset classes, such as equities, debts, or gold, you can spread your risk and achieve higher returns over the long term. Choose a mix of investments that are not correlated to each other to reduce the impact of any major fluctuations in a single asset class. Make sure you consider your investment goals, risk tolerance, and current market conditions when selecting investments.
- Stay invested and avoid timing the market
One common mistake that many investors make is trying to time the market. Timing the market involves trying to buy low and sell high, which is difficult to do consistently. Attempting to time the market by predicting the best time to invest or withdraw money also puts you at risk of missing out on returns if the market unexpectedly falls.
So, instead of trying to time the market, a better strategy is to invest in SIP (systematic investment plans). SIP helps you invest in mutual funds at regular intervals and eliminates the risk of investing a lump sum at the wrong time.
- Step up your SIPs during market corrections
During volatile markets, many investors stop or cancel their SIPs, fearing losses. But, this could be a mistake as bearish markets offer an opportunity for fund managers to buy quality equities and assets at attractive valuations. By stepping up your SIPs during these times, you can buy more units of the mutual fund at a cheaper price. This could lead to higher returns in the long run when the market eventually rebounds.
- Invest in value funds
Value investing is a long-term strategy where you identify companies whose stocks are undervalued. Value stocks usually trade below their intrinsic value and can offer profitable investment opportunities, especially for investors seeking a higher return. Also, value stocks do not fluctuate much during volatile markets because they are already trading at a lower price than the market average.
Over time, as the market rebounds and brings the true value of these stocks, the investors get the opportunity to enjoy higher returns.
- Rebalance your portfolio periodically
As markets fluctuate and grow, your portfolio can become unbalanced, with some assets over performing while others underperform. Rebalancing involves adjusting the asset allocation of your investments to maintain the right level of risk and returns. For example, by selling some of your over performing assets and buying more of the underperforming assets, you can maximise your mutual fund returns and ensure long term growth.
Most experts advise investors to examine allocations at least once every 6 months and rebalance as needed.
The key to maximising your mutual fund returns lies in strategic investment decisions. By diversifying your portfolio, staying invested for the long term, and avoiding common mistakes such as chasing quick gains and investing based on emotions, you can enjoy better returns over the long term.
It is equally important to consult financial professionals who can help you identify the good mutual funds to invest in and develop discipline strategies to weather volatile markets.