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How to build your MF portfolio?

Published on Thu, Jul 27, 2006 at 13:51 | Source : Moneycontrol.com

Updated at Fri, Jul 06, 2007 at 14:45

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Great salaries, excellent bonuses, fairly valued markets, high interest rates - the time looks just perfect to design and put together your mutual fund portfolio.

Building a MF portfolio is akin to building and furnishing your own home:

a) It depends on your financial capacity
b) Your personal tastes and preferences
c) Requires a lot of patience and care

Therefore, while there cannot be a model portfolio suiting everyone's needs and objectives, you can follow a few general rules to build yourself one.

Be clear of what you want

To begin with, you must decide what your financial objectives are; and how much risk you are willing to take to achieve those objectives.

The goals should be as precise as possible. For example you goals could be

Rs 50,000 to pay-off the personal loan in 2007
Rs 2 lakhs for children's higher education in 2012
Rs 1 lakh for foreign trip in 2010
Rs 7.5 lakhs for daughter's marriage in 2015
Rs 1 crore retirement corpus in 2020

Second, your goals must be realistic. They must be in line with your financial position and risk appetite. No point in having too ambitious or too pessimistic goals; or having goals, which require you to take undue risks. (Also read - How to profit from Mutual Funds?)

Devote proper time and thought to planning your goals.

Done? Good, that's a major part of your job over. Once you know where you stand and where you want to go, the rest is just a matter of details.

Match each goal with the appropriate MF category

Equity markets are too volatile in the short-term, but can give good returns in the long run. Debt funds, on the other hand, give steady but low returns. Therefore, select the goals, which you will finance through equity funds and through debt funds.

Assuming your retirement is still 15 years away, a predominantly equity portfolio may be a better option.

But for your personal loan, which is payable just one year hence, debt funds will be more suitable.

And for the medium term, like your foreign trip, balanced funds may be the right answer.

Liquid funds are a nice way to park your very short-term funds.

Don't be too concentrated or over-diversify..

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