Fund returns and fund-holder returns are frequently different. There are several reasons for this. Because returns are point-to-point, if your entry was incorrect, your returns could be drastically different. Returns will be lower than the category average if you invest in the wrong funds within the category. Finally, there are other factors that reduce your returns, such as exit loads, STT, and taxes. Here are 7 ways to boost the returns on your mutual fund investments.
1.Stick on with the Consistent Winners over time
Past performance is not a guarantee of future returns, but it is certainly suggestive. Funds that have consistently outperformed on a 3-year and 5-year CAGR basis have a story to tell. It is extremely unlikely that such funds will suddenly begin to underperform. Avoid funds with extremely low AUMs because they may pose a liquidity risk. Long-term leaders are generally consistent over time.
2.To spread your risk, diversify your MF investments.
Think again if you thought diversification reduced returns. If you are entirely invested in equities and the index falls by 40%, or if you are entirely in debt and interest rates rise by 3%, you are in big trouble. Diversified portfolios perform significantly better over a period of 5-7 years.
3.SIPs allow you to gain more value over time.
Even the most battle-hardened experts, according to most studies, cannot time the market. Most investors should avoid doing so. The issue with lump-sum investing is that returns can be negative even if you have a few bad days of purchases. A better option is a SIP, which uses rupee cost averaging to reduce costs while increasing returns.
4.Prepare a bullet plan.
What exactly is a bullet plan? As a backup, you invest a set amount in a liquid fund. Then you make a rule that every time the index corrects by 10%, you put some of this money into equity funds. Your SIPs will continue as usual, but if you include this bullet idea in your SIPs, it may help you buy at a lower price. This tends to improve your mutual fund’s long-term returns.
5.Plan your exit so that you can maximize your post-tax returns.
At the end of the day, you earn post-tax returns. Capital gains in excess of Rs1 lakh per year are subject to LTCG, so plan your exit carefully. If you intend to redeem your SIP after 5 years, try to spread your profits over several years to maximize the benefit of tax-free gains. This can increase your after-tax returns.
6.Remove laggards from your portfolio on a regular basis.
Portfolio laggards are similar to rotten apples. A few of them can ruin the show. How do you make your decision? Give a fund six quarters of your time. If it consistently underperforms its peer group on a rolling basis, you should exit the fund. Don’t worry about exit loads, capital gains tax, or anything else at that point. It is critical to breaking free from laggards.
7.Concentrate on asset allocation.
Surprisingly, this never goes out of style and is the summation of all previous steps. When you use a fixed allocation strategy, you are always high on cash when markets are low and fully invested well before the market peak. This not only monetizes your portfolio but also improves the long-term returns on your MF portfolio.
