How to build a Mutual Fund Portfolio


There are more than 40 plus AMC’s currently in the country constituting more than 1,000 mutual fund schemes.

With such heavy numbers, filtering becomes a herculean task.

There is of course no such thing as the ‘perfect mutual fund portfolio’ or the ‘best mutual fund portfolio’.

But you always need a ‘personalized mutual fund portfolio’ without which both your money and time in mutual funds is merely wasted.

There are several important points that you need to consider with serious thought if you have to have a meaningful experience with mutual funds that includes decent returns.


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Risk Profile

Risk profile is one of the most important factors to consider while building a mutual fund portfolio if not the most.

Your risk profile would include several points like the following but not restricted to:

  1. Age
  2. Current expenses
  3. Goal
  4. Time Horizon
  5. Emergency Funds
  6. Ongoing EMI’s
  7. Current Debt levels
  8. Stability of Income etc.

It is more beneficial and healthy to have a professional arrive at your risk profile rather than doing it yourself since we all have certain biases that could play against it.

We tend to overplay our risk taking capabilities and underplay our reality.

An outside neutral perspective is the closest you will get to see where you truly stand rather than where you ‘wish to think’ you stand.

A realistic risk profile analysis saves a lot of time, energy and even money for any short term redemptions can cause both exit load charges as well as taxes.

In many cases, investors have ventured into mutual funds without any sufficient assessment or hand holding and concluded mutual funds is not a healthy investment option because of their experience.

Two individuals with the same age, job designation, income, etc. can yet have different risk profiles if one has a running emi whereas the other does not.

This is precisely why you need a personalized mutual fund portfolio based on your risk profile concluded by a professional.

Another important point to take into account with a risk profile is that it can change over a period of time, you can have more/less loans with time or an increase in salary or more expenses with changes in your personal life (having a kid) etc.

This does not mean you should definitely make changes to your mutual fund portfolio based on life changes but yes, it is better to be aware of the effect of these changes on your portfolio.


Additional reading: Click Here to read about mutual fund mistakes you should avoid making 


Goals in terms of time horizon can be roughly divided as:

  1. Immediate
  2. Pressing
  3. Short term
  4. Medium term &
  5. Long Term

Further they can be prioritized by wants and needs, wants are something you can postpone or even avoid completely but needs you cannot.

Now based on both the time horizon as well as your priorities, your mutual fund portfolio should be accordingly bifurcated.

Even if you do not have any goals to begin with, retirement is a goal we all share so that is a goal you can assign certain mutual fund schemes to.

Later on you can add more goals as and when time passes and you are more accustomed to mutual fund investing.

Segregation of schemes and goals not only helps you stay disciplined but also makes sure your goals are never compromised.


Are you investing in the right mutual funds?

Professional Advice      

In a highly populated country like ours, opinions will always be aplenty and mutual funds are no exception to that.

It is one thing to receive unsolicited advice from family and relatives but with mutual funds recent trend suggests that investors also seek advice from strangers on social media who are no more qualified than them for mutual fund ‘advice’.

This never bodes well since the advice you receive, whether solicited or unsolicited has no accountability or qualification and you end up moving in and out of schemes based on differing advices you receive which in turn means higher taxes and exit load charges.

Mutual fund advice is not a one- time thing, it is:

  1. Prior to investing
  2. While invested and
  3. How to redeem

So do the simple and sound thing of reaching out to a distributor/adviser for better handling of your mutual fund portfolio.

Be it wealth or health, only let the qualified professionals enlighten you.


Emergency Funds

Never invest in mutual funds if you have not kept aside a minimum of 6 months of fixed expenses.

Not abiding by this will affect both your mutual fund portfolio as well as your overall financial health.

Imagine you do not plan diligently, one of the result of which is you not having an emergency fund.

Now if you have an emergency and touch your mutual fund portfolio, all your prior planning and financial goals go for a toss.

With such behavior, it will not be possible for you to ever achieve financial stability nor realize your goals.

Additional reading: Click Here to read why you should review your mutual fund portfolio yearly

Avoid star ratings

When building a mutual fund portfolio, avoid star ratings at all costs.

Star ratings are a recent phenomenon that has caught up quite quickly, mostly via the online route.

The most visible and obvious issue with them is how generalized they are, whereas ones portfolio should be personalized.

Another issue is the how the various mutual fund schemes are allotted these star ratings, more often than not recent returns on the higher side means a fund will have a higher rating.

Another point is studying a fund, not all schemes of a category will be functioning in the same manner despite the mandate restrictions.

Therefore comparison with respect to star ratings is a futile exercise.

Not all funds are about high returns, conservative funds for example are more about stability and yet are rated based on their ability to garner high returns which should not be the case. 


Are you investing in the right mutual funds?

Constant Review

Before you make your mutual fund portfolio, you should ask yourself if you are in a position to constantly review your portfolio on a periodic basis.

As previously mentioned, we often tend to overestimate our own analysis as we are biased.

We are living during times of abundant information but not enough knowledge, therefore investors who invest based on internet searches often end up with a huge portfolio.

This is because they end up chasing recent returns and since the ‘top performer’ often changes, they pick them all due to FOMO.

This results with an over diversified portfolio which not only drains their returns but also leaves them stuck with a huge portfolio which they have no clue how to manage.

If you invest in a mutual fund scheme then you should know the reason for doing so, the goal attached and have both the expertise as well as the time to review it periodically.


Choice of Funds

This should ideally be the last step in creating a mutual fund portfolio, unfortunately most investors make this their first step.

Only when you have considered the above points should you move towards picking your mutual fund schemes.

It becomes a lot easier with the filtering process of schemes once the other steps have been executed efficiently.

A mutual fund portfolio is more about the process rather than returns no matter how ironic it sounds.

The choice of funds do make a massive difference in your overall experience therefore following the process, taking the services of an expert and understanding the fund style is very important.

If not then you would have to suffer the consequences in the form of exit load, taxes, losing out on compounding effect, time, etc .



          Having a mutual fund portfolio and a strong mutual fund portfolio are two different things.

         You need someone who has both the time and the professional technicalities to track your portfolio on a yearly basis and guide you from time to time with regards to any development for your mutual fund portfolio and if any action needs to be taken from your side.

       If not then it is better to stick to traditional means of savings like fixed deposits in which even if you may not gain much but at least you would be aware with what is going on.


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Disclaimer : While due precaution has been undertaken in the preparation of this article, The Mutual Fund Guide or any of its authors will not be held liable for any investments based on the above article. The above article should not be considered financial advice and has been published only for your perusal. Due credit has been given in case wherever required, in case you feel any part violates any rights then do get in touch with us and we shall get it duly removed.  
Mutual Fund investments are subject to market risks. Please read the offer document carefully before investing

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