5 Ways to Optimise Returns from Your Mutual Funds

Mutual funds have become the go-to investment option for today’s investors as they want better returns and diversification. These funds pool money to invest in a wide range of assets and are managed by experts who bring expertise to the table. However, relying only on expert management is not enough to get returns.

To truly benefit from mutual funds you need to complement this with smart strategies and your own informed decisions.

5 Ways to Get Better Returns from Mutual Funds

Let us look at some valuable tips and insights that can help maximise returns from your mutual fund investments and achieve financial goals.

1. Choose SIP Route

Systematic investment plans or SIPs allow you to invest in mutual funds at regular intervals of your choice, such as weekly, monthly or quarterly. Since SIPs are deducted from your bank account on a fixed date, it helps inculcate financial discipline and reduces the stress of timing the market. On the other hand, if you opt for a lump sum investment, you will have to gauge the market condition to try and invest when the market is at its bottom, which is a difficult task. 

By investing through SIP, you can also benefit from rupee cost averaging which helps to reduce the impact of market fluctuations and lower the cost per unit.

A lot of mutual funds offer SIPs for as low as ₹100 or ₹500, making investing affordable for investors. SIPs also allow you to experience the power of compounding, enabling small and consistent investments to grow big over time.

They also offer flexibility. You can change your investment frequency and amount as per your financial condition. You can increase your SIPs as and when your income increases.

2. Go for Low-Cost Funds

Expense is an important factor to consider while investing in mutual funds as it can impact your returns in the long term. To get the best out of your investments, going for low-cost funds like exchange-traded funds (ETFs) and direct plans over regular plans can be beneficial. These have lower expense ratios. As a result, more of your money goes into the mutual fund and not into management fees.

Regular plans have a higher expense ratio of 1-1.5% than direct plans. You can use INDmoney’s Regular vs. Direct Mutual Fund Calculator to see how much you can save if you go for direct plans.

The small difference in fees can add up to big amounts over time and help you earn more returns on your investments.

3. Diversify Your Investments

Putting all your eggs in one basket is a risky move. Diversifying your investments can reduce risk and get better returns. Even while investing in mutual funds you should go for variety. Different funds perform differently based on asset class, macroeconomic conditions and the fund manager’s decisions.

Investing in different funds, spread across stocks, bonds, gold or real estate can get you better returns as these asset classes are not correlated to each other. For example when the geopolitical conditions are poor, gold as an asset class can perform better while stocks can struggle. A well-executed portfolio diversification strategy can help you get the best risk-adjusted returns.

4. Monitor Regularly

It is important to monitor and rebalance your mutual fund investments regularly to get the best out of them. You should compare your fund with its peers and benchmarks at least once a year to see if it is aligned with your financial goals.

Remember funds that have done exceptionally well in the past may turn out to be laggards as they may not perform consistently over the long term. You can switch to better-performing funds if your chosen fund is consistently underperforming its peers or benchmarks for at least three years.

5. Invest for Long-Term

Having a long-term perspective and patience is key to mutual fund investing as it allows you to benefit from the power of compounding. Short-term market fluctuations can deter investors but they should remember that having a long-term approach can help them ride through these ups and downs as markets tend to recover over the long term and give good returns.

Conclusion

Investing in mutual funds can be a great way to achieve your financial goals. Adopting these strategies can ensure you maximise your return potential while reducing risks. Lastly, you must consider your investment objectives, risk profile and consult a financial advisor before investing in mutual funds.