Strategies for managing portfolio of mutual funds
Different people follow different strategies when it comes to investing in mutual funds. Investors choose the strategies which they feel suits them. Following are some of the mutual fund investment strategies.
Wing-It Strategy
Wing-It strategy means there is no particular plan or structure in place. The investment is done randomly without any base. If there is no clear plan as to where to invest and why there is no clarity. As the investments are done randomly it is also difficult to track such investments. This is the most followed strategy among the mutual fund investors. But on the contrary, this is one of the least recommended strategies among the mutual fund experts and financial planners fraternity.
Active Strategy
Active strategy, also known as a market-timing strategy, is a strategy to get in and out of the sectors, assets or markets at the right time. Ideally, this means that you will always buy low and sell high. To achieve this one needs to be patient and disciplined but very few investors can achieve this as investor behaviour is typically driven by his/her own emotions. In reality, neither one can predict what could be the possible low nor one can predict as to what would be the possible high.
Passive Strategy
Passive strategy, also known as a buy-and-hold strategy, is a strategy where you buy and hold assets and don’t try to time the market. This is the most awarded strategy in the financial planner's community. When you implement this strategy it is assumed that there is a probability of markets going up 75 per cent of the time and falling 25 per cent of the time. So, when you employ a buy-and-hold strategy, whether markets are up or down there are chances that you will be profitable 75 per cent of the time.
Performance-Weighting Strategy
The performance-weighting strategy is the strategy where investor revisits his/her portfolio mix periodically and make some adjustments to it. For instance, you invested in mutual funds as 50 per cent in Fund A and 50 per cent in Fund B. Post one year, the proportion changed to 75 per cent in Fund A and 25 per cent in Fund B. So most of the investors would try to dump the Fund B as it performed badly and by more of the Fund A as it performed better. But this is not what performance-weighting strategy says. On the contrary, this strategy says to sell the excess 25 per cent in the Fund A and invest the same in Fund B. This is also one of the portfolio re-balancing strategies.