There are certain strategies to follow for managing mutual funds portfolio. Once you have built your mutual funds portfolio, you must also learn to manage it effectively. You can utilize some of the strategies as discussed below.
There is no best secret for gaining profits in mutual funds. While investing in mutual funds, you will get an idea eventually what is to be done and what is to be not. But you cannot blindly spend on buying or go on selling your funds. Hence, some of the eminent financial analysts have introduced few strategies so that you can invest carefully and thoughtfully.
Some basic systems and principles
As a wise investor you should follow some basic systems and principles that any sensible investor should follow. It may seem obvious to many, but few people adhere to this “common sense.” A smart investor is one who is aware not only of the complete composition of the his portfolio, but also of market trends. These factors enable the investor to make an informed decision-and an informed decision is 90% of the work towards successful investing.
There are several techniques used by investors while tracking mutual funds.
Momentum strategy
The method of the buying of stocks of companies whose earnings are rising.
Buy Undervalued - This is another strategy of buying the funds which are undervalued. This strategy “bets” that the prices of these funds are bound to rise, and with time, will do so.
Blue-chip funds - A traditional strategy of buying the mutual funds of blue-chip stocks.
Small-cap funds - Buy mutual funds of small companies. Diversification is very important for this strategy. Momemtum investors gain more than long term investors. A momentum investor is aware about the dynamics of the market and use the changing trends for entry and exits. A long term investor is least bothered about the market dynamics and follow a strategy of buy and hold.
Wing-It strategy
The most commonly found strategy is the Wing-It strategy. It is adopted unknowingly by a new investor who does not have enough knowledge about the mutual funds investments. In this strategy, the investor does not have a designed portfolio. You do not actually plan or build a pattern of your mutual funds investments. You just add money to your account and do not have an idea how you are going to invest. If you have a well-designed portfolio plan, then the investment becomes a relatively easy task. This strategy does no result in success due to non-consistency on the part of the investor.
Market timing strategy
The market timing strategy evaluates the market conditions. It works on the tagline: buy low and sell high. But investors do not focus on their logic and more on emotions. Hence, they tend to work in the opposite direction. The right time of buying and selling cannot be determined by the investor. Hence, this strategy is difficult to practice as market conditions cannot be predicted by mere observation. For overcoming this issue, you can take help of market timing indicators.
Buy and Hold strategy
Instead of buying and selling immediately, it is easy to buy and hold an investment. You can buy mutual fund and hold it till you get the right price. This strategy has achieved success than others. As it is easy to implement, this strategy is popular and commonly used.
Performance-Weighting strategy
This is the combination of some of the elements of market timing strategy and buy and sell strategy. You must implement this strategy by reconsidering your investment portfolio at regular intervals. After analysis, you must modify it accordingly. This should take place with respect to market conditions and after sufficient holding of the investment.
In simple terms, you must be able to re-balance your portfolio at year end. This is the reason why it is known as performance weighting. You weigh your performance in terms of future returns and existing market conditions. If you are disciplined enough about your mutual funds investments, then you can adopt this strategy and earn substantial results. This strategy works well for a committed investor.
Hence, for implementing of mutual fund investment strategy, you must be committed and disciplined. You must be able to manage your funds and adhere to a well-built plan. You should control your decisions and take wide decisions efficiently.
Recommended Read :
- Methods to Select the Best Mutual Funds
- What are Mutual Funds?
- Types of Mutual Funds in India
- 5 Types of Popular Mutual Funds in India
- Understanding Mutual Funds Returns?
- Fixed Deposit Vs Mutual Fund
- Real Estate Vs Mutual Fund
- SIP Vs Mutual Fund
- Mutual Fund Investment Strategy
- Mutual Funds in India
- What is Net Asset Value (NAV)?
- Open Ended Mutual Fund Scheme
- Close Ended Mutual Fund Scheme
All i know about mutual funds is they are subject to market risk. But this article has given me more information on do’s and dont’s about mutual funds. The question i now have is, is it better to invest in mutual funds or shares?? Yes i completely agree that one should buy mutual funds when prices are low and at some point the value will go up and one can sell it but the question again is, can they be sold anytime?
Really, is there so much about mutual funds!! A very informative piece on this, beyond my imagination. The various strategies like momentum, wind-it strategy etc have been clearly explained.Hence, for implementing of mutual fund investment strategy, you must be committed and disciplined. You must be able to manage your funds and adhere to a well-built plan.
Mutual funds are a best buy only when you can wait and watch. When one has enough money to spare and so can wait for the optimum time. It is best for anew investor to first observe the trend before investing. Mutual funds should not be an option for emergency situations but one can easily procure loan on behalf of it.