SIP news: 5 ways to reduce mutual fund investment risk

Mutual Fund is becoming one of the popular forms of investment as it offers a range of benefits to individuals and is hassle-free, effective and convenient but has a certain amount of risk. Mutual Fund is like every other investment product since it entails some risk. 

Despite the fact that this risk cannot be completely eliminated and varies from scheme to scheme depending on the investment aim, there are steps you can take to lower the overall risk level of your mutual fund portfolio. Here are some simple investment strategies that can help you minimize mutual fund risk:

1. Diversification of portfolio:
It means investing your money in a combination of assets and schemes and not concentrating on just one place. When it comes to investment diversification is the key. However, the type of diversification varies from scheme to scheme. Of the numerous schemes on the market, those that are well-diversified and have the right amount of debt and equity depending on your age, the time horizon for investing, and risk tolerance give the most opportunity for diversification.

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2. Consulting Investment Advisor:
Investing can be undertaken with just a few clicks of a button due to multiple fintech apps making it easier for investors. However, there is a sea of publicly available financial information, which can be confusing. This makes smart investment difficult, particularly for new investors. Many investors are not much aware of goal-based financial planning even after their extensive research; hence, they land up with ad-hoc investing by following tips from their surroundings which might cost them dearly.

3. Invest for a goal:
Selecting the ideal mutual fund may be aided by investing in a certain objective. For instance, you might think about equity mutual funds if your objective is to save for retirement with an investment horizon of at least 20 years. However, you might consider liquid funds if your objective is short-term liquidity. One of the many benefits of investing in mutual funds is that they provide rapid redemption and have a maximum maturity of 91 days.

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4. Invest through SIPs:
A systematic investment plan allows investors to invest in small quantities instead of a lump sum at regular intervals. Many consider SIPs as a product however it’s a simple mode of investment. It is available to investors for the long term and offers many benefits, one of which is risk reduction. You don't need to time the market if you invest through SIPs. Instead, rupee cost averaging is used to average out your investment costs. It means that when the market is high, you receive fewer units, and when the market is low, you get more units for the same price.

5. Periodic evaluation:
A periodic evaluation, monitoring and reviewing of investment is helpful in keeping track of your portfolio’s performance. When you review the procedure, you eliminate the laggard schemes that are regularly underperforming and replace them with fresh ones. To determine whether a change is necessary, it is crucial to compare a portfolio's performance to a benchmark solely.