While investing in mutual funds, a lot of investors do not give much thought to the returns since the common sentiment is that the fund manager will be able to allocate the pooled funds into the right avenues. However, a little research on the part of the investor can go a long way in ensuring that one can make the most out of their mutual fund investments and maximize the returns. Also, it is always in the investor’s favour to review their investments from time to time.
The main benefit of investing in mutual funds is that there are numerous active schemes to choose from. Essentially, this means every type of investor can find a suitable fund for their investments. Also, in the case of open-ended mutual funds, it is possible for you to buy and sell your units anytime. This means there is always a high level of liquidity.
If you want to maximize your mutual fund returns then here are three tips to follow:
Select index funds: When you choose to invest in index funds, you can keep the costs low and invest more money to gain more returns in the long run. Also, since index funds are passively managed, there is no “manager risk” where the fund manager’s decisions could affect your returns in any way. But the market risk should still be considered with index funds.
Allocation of assets: Asset allocation is an important component of your portfolio and can help minimize portfolio risk and maximize returns. Stocks generally perform better than cash or bonds over the long-term. However, in the short-term, it has been seen that bonds have performed better than stocks. Therefore, it would be wise to invest in stocks as well as bonds, instead of concentrating your investments in one asset.
Another thing you can do to keep the cost down and thereby, increase your returns is to invest in a fund that does not have an entry or an exit load. Load funds tend to be expensive as they take up a certain percentage of your investment. That way, there is a chance that your investment returns will be affected in the long run.