The objective of an investment is to make profits, which can be achieved by choosing the right financial instruments. Mutual funds are considered to be one of the most lucrative investment avenues due to the wide array of options available for investors of different risk appetite, capacity and investment horizon. When planning your MF investments, it is essential to follow a few steps so that your investments are tax optimised.
1.Look for consistency in performance: While it is true that you cannot predict the future, the past is certainly indicative of a mutual fund’s performance. Invest in top-rated picks to enjoy the best mutual fund returns.
2.Broad base your investments to spread the risk and get maximum return in mutual funds: As the adage goes, ‘Do not put all your eggs in one basket, the same holds true for your investments. Carefully picking the components in your portfolio not only minimises risk but also gives you maximum mutual fund returns.
3.Believe in the three-lettered magic word—SIP: To harness the maximum benefit out of investing, nothing works better than SIPs or Systematic Investment Plans. It is a well-established fact that timing the market is practically not possible. So, timing your investment could provide the dual benefit of amplifying the returns with minimal risk due to rupee cost averaging that comes into play. The investment attribute that the markets reward the most is discipline and investing in mutual funds through SIPs ensures investment discipline to maximise returns.
4.To save tax and maximise returns, do some exit planning: Since capital gains above Rs. 1 lakh are taxable now as long-term capital gains, you can plan your mutual fund redemption over a period of time to save tax on the returns received. After all, your money has worked hard for you, and you can enjoy its maximum benefit with a bit of planning.
5.Take stock of your investment portfolio periodically: You must have started mutual fund investment with a certain goal in mind. The value of your portfolio is the journey towards that goal. So, you need to keep checking your journey and do some course correction if required.
6.Focus on asset allocation: This is the sum of all the previous steps and answers the three most important questions before starting to invest: where, how, and how much? You must have the right asset allocation to maximise your returns. Age-based asset allocation is one of the simplest to follow, which prescribes that the equity percent share in your MF portfolio should be the difference of 100 and your age. It works on the logic that you need to move your investments towards debt-based funds as you grow older due to lower underlying risk.
To create wealth, you need to have patience coupled with periodic investments spread across sectors. Being mindful of these points could help in providing a strong foundation to plan your investments and derive maximum returns.