4 Ways For Millennials to Boost Returns With Mutual Funds
Mutual Fund
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Are you a millennial looking to maximise your mutual fund return? Do you want your investments to help you attain financial goals? You may consider the four ways for millennials to boost returns with mutual funds. It helps you enjoy financial security as you strive for a better tomorrow. You could invest in equity funds even if this is your first time in the stock market. However, you may put your money in these funds only if it matches your investment objectives and risk tolerance. 

Here are the four ways for millennials to boost returns with mutual funds. 

1. Invest in Index Funds

Index funds put your money in stocks that constitute an index, in the same proportion. It is a passive investment that mimics an index such as BSE Sensex and Nifty 50. You may consider putting your money in index funds, if you want returns in-line with the stock market. Index funds help you to buy the stocks of top companies at all points in time. 

You may select index funds depending on your investment objectives and risk appetite. For example, you may invest in mid-cap index funds if you don’t want to choose between 100-150 mid-cap schemes. 

The portfolio of Index funds has a lower churn rate as compared to actively managed funds. You may consider investing in index funds if you want a transparent investment with a lower expense ratio. Millennials who are first-timers in the stock market may seek exposure to a broad-based portfolio through index funds. 

2. Diversify across Investment Styles

You may consider diversifying your portfolio for optimum return. It means spreading your investment across sectors and industries. Millennials could opt for a portfolio with high exposure to equity funds and benefit from the power of compounding. You reinvest earnings at the same rate of return to continually grow the principal amount over some time. 

You could consider diversifying your portfolio across different investment styles. Mutual Fund Houses have different approaches to fund management. You may benefit from the expertise of different fund managers. You could invest in equity funds across market capitalisation and geographies. 

However, you must check the portfolio of the equity fund before investing your money. You cannot diversify your portfolio if you invest in different equity funds with the same basket of stocks. You may pick equity funds depending on your risk tolerance.

Also Read: 5 Tips to Invest in Mutual Funds for Good Returns

3. Don’t stop your equity SIP

A SIP or systematic investment plan is a method of staggering your investment in a mutual fund scheme, over some time. It helps you invest a fixed amount of money at regular intervals to achieve your financial goals. However, you may consider stopping your SIP in the mutual fund scheme, when stock markets are falling. Don’t commit this mistake if you want to achieve your financial goals.  

You get the benefit of rupee cost averaging if you invest a fixed amount at regular intervals. It helps you purchase more units of the mutual fund scheme when stock markets are falling, and lesser units when stock markets rise. This approach brings down the average cost per unit over the long-term. 

You may bring down the cost of investment if you continue your SIP when stock markets are falling. However, you cannot take advantage of volatility if you stop your SIP during a stock market correction.

4. Periodic Review of the Portfolio

You may consider reviewing your portfolio to check if it aligns with your investment objectives and risk appetite. You could modify your portfolio if there are changes in risk tolerance, age, and financial goals. 

Review your portfolio at least once every six months. It helps you shift funds at the right time to achieve your investment goals. You may consider comparing the performance of your portfolio to an appropriate benchmark. Check the tax-efficiency of your investments if you want a high post-tax return. 

The best mutual funds match your risk tolerance and help you achieve your financial goals. Millennials could invest in equity funds to meet long-term financial goals. You may put money in mutual fund schemes through the SIP as it encourages financial discipline. Timely rebalancing of the portfolio helps you align investments with your goals. In a nutshell, you may select a mutual fund scheme with consistent performance over several years.

For any clarifications/feedback on the topic, please contact the writer at cleyon.dsouza@cleartax.in

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