Having an investment strategy is crucial for any investor. This should depend on individualist goals and preferences. No thumb rule promises steady returns. You need to curate an approach that works best for you. This is where most investors get confused. Typically, having a diverse portfolio is advisable. This is because it spreads your risk across different asset classes.
But a focused portfolio is an option worth considering if you have immense experience and trading knowledge. Here, you leverage your understanding of selected companies and their underlying intrinsic values. The reason is its concentration of a few quality stocks. In such a Mutual Fund portfolio, the focus is on the top 10-20 holdings comprising 50% of the total investment. Here are ways to build them:
Analyse your circumstances
Your financial position provides a practical understanding of the possible action. Go through the financial picture to gain clarity on the importance of diversification. Are you in a protected or vulnerable position from a long-term perspective? Such knowledge lets you predict if the stock value has improved or is steady. You should decide ways to allocate funds in Equity Linked Saving Scheme or ELSS and other categories based on your circumstances.
Focus on the objectives
Another aspect of building a portfolio is your motivation. Most investors know how to achieve specific objectives. Let such goals guide you. Use them as the deciding factor for building a concentrated portfolio. Remember, focusing on your shareholdings does not mean ignoring diversification. You need to spread your investments across Equity, Exchange-Traded Funds or ETF, Debenture, etc.
Be realistic
The selection of securities relates to the perception of risk and earning potential. This applies to both diverse and focused Mutual Fund portfolio management. There is no room for bias. Your emotions should not interfere with facts when choosing market-linked schemes like Equity-Linked Savings Schemes or ELSS.
Apply the knowledge
Every asset class you opt for has a significant impact on the overall performance. Hence, you should acquire detailed knowledge about every scheme you select for the portfolio. For instance, ELSS with a lock-in period of three years is famous for its tax benefits. Similarly, other schemes have designated terms you should learn about. Gaining expert knowledge is essential for asset allocation.
Identify the reasons
Concentrated portfolio management is not meant for all. You require detailed knowledge about the stocks you hold to try this approach. This is because you focus on limited assets, including ETFs, Equity, Debt Instruments, etc. Hence, clarifying why you need to hold a concentrated stock position is essential. Assess the risk tolerance and your goals when creating your MF portfolio.
