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What should my ideal mutual funds portfolio look like?


I have invested in various mutual funds schemes. However, I don’t know how I should allocate my investments with financial goals. I don’t have idea about asset allocation strategy. Therefore, please explain what should my ideal mutual funds portfolio look like?

— Karan Bhatia

The ideal mutual funds portfolio has the right asset allocation suiting the investor’s risk appetite, investment horizon and his goal. It should be well diversified among the schemes from different sub-asset categories and the exposure towards a given single scheme should not exceed the 10% of the overall portfolio. Even exposure should be divided among various reputed asset management companies (AMCs) and fund managers as each fund manager has its own style of managing it. There must be some amount kept aside to meet the sudden exigencies. The portfolio should get reviewed after every six months or on occurrence of any specific market event with the help of your financial advisor.

Mutual funds are considered safer than stocks or derivatives because they are benchmarked against indices. However, because this asset class is also subject to market risk, isn’t it best to educate yourself on the subject before diving in?

–Himali Patel

Mutual fund investments are subject to the market risk (as you correctly mentioned) just like we have in stocks or derivatives. The market risk is a systematic risk which cannot be predicted and controlled. Hence, one should always choose the investment instruments post analyzing its risk-reward proposition and his own risk appetite. We therefore suggest you seek the advice from the expert/financial advisor before building your portfolio in any such instruments.

Rajiv Bajaj is joint chairman and MD, Bajaj Capital Ltd.

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