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ONE of the common queries that investors have about their mutual fund portfolio is how to invest the additional funds available with them. This throws up a challenge because investing these funds in a proper manner will ensure that the overall portfolio retains its features.
It can also aid in proper allocation of risk across different assets as well as type of investments. Let us consider this kind of situation, and see how we can tackle it effectively.
Additional funds: Most investors slowly accumulate small amounts and then deploy them into various instruments over a period of time. This results in a situation where investors, over a period of time, accumulate additional funds and face a challenge to invest it properly.
In this period, investors face a dilemma about making a decision about the fund that they actually want to invest in. The first choice for many people is to select a new or a different fund, as this is thought to be necessary for new investment. So, this is something that often becomes a main issue for investors as to whether they should continue with an existing fund or choose a new one.
Alternative way: For investors who use the systematic investment plan (SIP) route, the initial decision about investment is made at the time of selecting the fund for SIP. Once this is set in motion, all that they need to do is to ensure that the required fund is available each month. This will then complete the process automatically as the funds will go into the scheme as per the plan and there will not be any further disruption in the process. Here too, the choice for investors involves whether to continue with SIP in the same fund after the initial period is over, or select a new fund that will provide them with some varied exposure as compared to the initial investment.
Overall decision: There has to be a look at the overall portfolio before a decision is taken as to whether there is a need to change funds and look for something beyond what is already there.
The selection of a particular fund has to be an exercise that takes some time and effort and, hence, will require a look at several details that are present all around them.
Once a fund is selected, its place among the overall portfolio has to be seen to know its role.
This will also give an idea about the manner in which further additions would need to be made.
Usually, there should be a time period allowed for a fund to actually perform and show its potential.
There is a tendency among people of just investing in a new fund whenever they have some additional funds available. This might seem to be a different way of tackling the situation, but what is important is to consider the impact on the overall portfolio of an individual. In several cases, putting more money into an existing fund would also achieve the objective.
This critical analysis is required so that a proper picture is presented and that the investment is actually part of a larger plan, rather than just a step to seem to be different. This will ensure that there are some specific results that can be expected from the portfolio over a period of time.
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