Building A Diversified MF Portfolio From Scratch

Investing in a mutual fund is not an ad hoc process. It requires a disciplined approach that will help you in achieving your financial goals, some of which may be your 'needs' and some would be 'wants'. In this article, Henil Shah explains how to build a diversified mutual fund portfolio from scratch

- Henil Shah

The markets have been heading southwards with Nifty 50 plummeting over 15 per cent in the past eight months. Therefore, we can safely confirm that the markets have entered into a bear zone. Moreover, even developed nations are facing the pain due to inflation and thereby aggressive hiking of policy rates. Also, experts believe that United States and the Euro Zone are on the verge of recession.

If recession does happen, then more pain is anticipated. In such a scenario, most investors might be staring at a red portfolio given the fact that equity and debt funds are delivering negative real rate of returns.

As can be seen in the above graph, the median returns of equity mutual funds were negative 15.37 per cent, while for debt funds it was 0.88 per cent. Therefore, both the asset classes generated negative real rate of returns. Now assume that you have invested all your money in equity mutual funds. In that case, you might be staring at 15 per cent loss. However, if you had invested even in the 50:50 (50 per cent equity and 50 per cent debt) fashion, then your total portfolio would have been negative 7.24 per cent. This means that just by adding debt to your portfolio you could have cut your loss by almost 50 per cent.