Fund performance - what must you do for stable growth

February 14, 2019

1. Before deciding what your ideal investment portfolio must be, you have to ensure that it satisfies your risk appetite. Traditionally, there are defined categories of investors and although such classification lines are not rigid, yet this classification allows some understanding of what you priorities should be. For a person who is young and wants good returns, more than 90% of the surplus funds should be invested in equity. There are plans which focus on small cap and mid-cap investments and offer high returns. Generally small cap companies, with their unseen potential offer the scope for great returns. Similarly, the mid-cap companies also offer a better scope of high returns (although the probability margin may not be as high as that of small-cap companies). Therefore, if you a person with penchant for high-risk investments, you should choose a portfolio that invests heavily on equities.
2. The next category of investors is the one that does not prefer too much risk. Such investors tend to build a portfolio where 65% of the surplus funds can be invested in equity, while the rest goes towards debt or fixed interest instruments. This gives the advantage of stable growth of funds while reducing the risk of market-volatility to a large extent. Such investments stress more on large cap-stocks that increase the factor of fund-safety. However, such investments may not have the equal scope for high returns as much as small-cap or medium-cap stocks. Therefore, it can be thought of as a balanced portfolio for investors who have low to medium risk appetite.
3. Then comes the investment category which is meant for people with no appetite for any risk. This is the safest mode of investment and focuses almost entirely on debt and fixed interest instruments. The focus is strictly on large-cap and mid-cap debt funds and the fund allocation is done in such a manner that more than 90% of the surplus funds are allocated towards debt. Needless to say that although the factor of safety is highest here, the scope for high returns is equally low.
4. Going for SIP while planning your investment is also a factor that is quite beneficial. An SIP or a Systematic Investment Plan ensures that regular investment of fixed amounts is done towards the plan and therefore, this allows you to sufficiently invest for better returns over a period of time while also ensuring that you get the benefit of rupee-cost averaging.

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