Here's how you can create a long-term portfolio in mutual funds

When talking about goals and objectives, we usually divide them into short or long-term investments. Long-term is for someone in 30s who would be planning for a child’s education or retirement. However, no defined tenure can be used to describe the word ‘long-term’. In simple terms, it varies according to individual goals. The majority of investors view a period of three to five years or longer as long term. Long-term investments contribute to the security of cash for the future. Additionally, one can begin with a little investment and grow it into a sizable corpus because a long-term investment provides sufficient time for assets to appreciate. Let’s take a look at ways you can create a long-term portfolio.

Establish your long-term goals

Long-term investments come in a variety of forms. The first stage in developing a long-term strategy is defining what constitutes a long-term objective for you. Take note that numerous long-term portfolios with distinct aims may exist.

For instance, you can create a retirement portfolio based on the number of years remaining until retirement. You can create a separate long-term portfolio for your children’s education based on the amount of money you anticipate needing in ten years.

Research on various investment options available

Conduct in-depth research on the various sorts of long-term investments and their associated returns. While it is well known that equity funds have a better risk-reward ratio than debt funds, even within broad categories, there are at least ten separate funds with diverse characteristics.

For instance, within equity mutual funds, for example, a small-cap fund is riskier than a large-cap fund. Under the debt fund, credit risk funds are riskier than most other debt fund categories, and the gilt funds are less risky.

Determine your risk tolerance

Additionally, it would be best if you examine your risk tolerance. This is critical since your risk tolerance should correspond to the risk associated with your investments.

Power of diversification

As a general guideline, diversify your investments continually. Diversification enables you to benefit from the best characteristics of the majority of assets. Even if you have an extremely high tolerance for risk, complete exposure to riskier products may get you in hot water. Additionally, it is not prudent to have a severely skewed investment portfolio. In the end, diversification contributes to maximising returns over a longer time horizon.

Points to note

— Long-term investments contribute to the accumulation of capital for future requirements. Different long-term portfolios can be created for various long-term objectives.

— Mutual funds are a time-tested choice for long-term investment in India.

— Different types of mutual funds have varying risk/reward characteristics. Individuals should assess their risk tolerance and allocate funds accordingly.

— Diversification is critical to protect against potential losses in any particular investment or mutual fund.