How should new mutual fund investors build their portfolios?

Wealth managers say first‑time mutual fund investors — and those shifting money from fixed income products — should construct their portfolios gradually rather than com‑ mitting large sums at once. A paced approach, they say, helps investors align choices with goals, time horizons and risk appetite.

HOW SHOULD YOU START BUILDING YOUR MUTUAL FUND PORTFOLIO?

Start slow. Investors should build their portfolios over time instead of allocating everything in one go. The mix of assets — equity, fixed income, international equity and precious metals — should reflect one’s investment horizon and risk profile. Aggressive investors may prefer a higher equity allocation, including some exposure to mid‑ and small‑cap funds. Conserva‑ tive investors may want to stick with large‑cap‑orient‑ ed categories and maintain higher allocations to fixed income and precious met‑ als, often through hybrid or multi‑asset funds

WHICH FUNDS CAN ONE START WITH?
Young investors with investment horizons of seven years or more can begin with Systematic Invest‑ ment Plans (SIPs) in diversified equity funds, index funds and multi‑asset allocation funds. Those who want to avoid fund‑manager risk can choose large‑cap index funds that track the Nifty 50, Nifty Next 50, Nifty 100 or the Sensex. Conservative investors could start with a multi‑asset allocation fund, where the manager spreads money across equity, debt, precious metals and international equity. Once this core allocation is in place, investors can add exposure to specific asset classes based on long‑term goals. Aggressive equity investors can begin with index funds and diversified equity funds. They may also stagger their equity invest‑ ments over six months to manage volatility.

ARE EQUITY SCHEMES THE ONLY OPTIONS?

Investors who want to park money temporarily — either before deploy‑ ing a lump sum or while waiting for clearer mar‑ ket cues — can consider arbitrage funds, which offer tax‑efficient re‑ turns with low volatility. Those whose income is not taxable or who fall in lower tax brackets may look at short‑duration debt funds, which carry minimal interest‑rate risk. These options typically deliver 6-7%, materially higher than the 2.5–3% available on savings‑bank deposits.

WHEN SHOULD INVESTORS OPT FOR MID‑, SMALL‑CAP AND THEMATIC FUNDS?
These categories aren’t ideal for first‑time investors or those transi‑ tioning from fixed‑income products. Once investors understand how equities behave and are comforta‑ ble with associated risks, they can consider modest allocations to mid‑ and small‑cap funds. Seasoned investors may earmark a small portion—generally not more than 10% of their overall portfolio — for thematic ideas. If their risk profile allows allocation to mid‑ and small‑caps, a staggered approach helps manage volatility. Wealth managers caution against narrow thematic or sectoral funds, which often require precise entry and exit timing.