How to Create a Mutual Fund Portfolio That Works for You

Posted on Monday, June 30th, 2025 | By IndusInd Bank

When it comes to investing in mutual funds, many people focus only on picking “the best” schemes. But building a mutual fund portfolio that truly works for you goes beyond just chasing top-performing funds. It’s about creating a mix of investments that align with your goals, risk appetite, and time horizon—and reviewing that mix periodically to make sure it still fits.

Whether you’re just starting your investment journey or looking to fine-tune your portfolio, here’s a step-by-step guide to help you build and review a mutual fund portfolio with confidence.

How to Build a Mutual Fund Portfolio?

A good mutual fund portfolio isn’t just about chasing the highest returns. It’s about balance. Here’s how to get started:

Step 1: Know What You’re Investing For

Before you select any fund, ask yourself: What am I investing for?

• Are you saving for a short-term goal, like a vacation or emergency fund?
• Or something long-term, like a house, your child’s education, or retirement?

Your goals will help determine the right investment horizon and the type of mutual funds suitable for you.

Example:

• For short-term goals (less than 3 years), you might look at low-risk options like liquid or ultra-short-term debt funds.
• For long-term goals (5+ years), equity funds or hybrid funds may be considered, depending on your risk comfort.

Step 2: Assess Your Risk Tolerance

Everyone has a different comfort level when it comes to taking risks. Some can stomach short-term volatility, while others prefer stability.

Consider:

• Your age and income
• Your financial dependents
• Your ability to handle market fluctuations
• Your willingness to accept losses in the short term

Step 3: Diversify Your Portfolio

Diversification is key to managing risk. Instead of putting all your money into a single fund or asset class, spread it out.

A well-diversified mutual fund portfolio might include:

The exact allocation will depend on your goals and risk profile. The idea is to reduce the impact of any one fund’s underperformance.

Step 4: Keep an Eye on Costs

Mutual funds come with costs—like expense ratios and exit loads—that can affect your returns over time.

While choosing funds, review:

• The expense ratio, especially in actively managed funds
• The exit load, which may apply if you redeem too early
• The fund’s turnover ratio, which shows how often the portfolio changes

Opting for funds with reasonable costs (while still meeting your investment goals) can make a big difference in the long run.

Step 5: Review Your Portfolio Regularly

Once your portfolio is set up, don’t just forget about it. Life changes—and so should your investments.

Review your mutual fund portfolio at least once or twice a year to:

• See if your funds are performing as expected
• Adjust your allocation if your goals or income have changed
• Rebalance your mix to maintain the intended risk-return profile

Also Read: What is a Fund of Funds in Mutual Funds? Everything You Need to Know

Key Factors to Consider When Selecting Funds

Here are a few factors you must take into consideration when analyzing FoFs:

1. Past Performance

While past performance doesn’t guarantee future returns, consistently well-performing funds (especially over 3-5 years) can give you an idea of the fund manager’s strategy and fund stability.

2. Fund Manager’s Track Record

Experienced fund managers with a solid track record are generally more equipped to handle market cycles.

3. Expense Ratio

Lower expense ratios mean less of your return goes towards management fees. It may not seem like a big deal now, but over time, it can impact your overall returns significantly.

4. Exit Load and Lock-in Period

Some funds charge a fee if you exit early or have a mandatory lock-in (like ELSS). Know these before investing.

5. Tax Efficiency

Different funds come with different tax treatments. Equity funds enjoy better long-term tax benefits, while debt fund gains are taxed as per your income slab.

Additional Considerations to Take a Note of When Building and Reviewing Your Mutual Fund Portfolio

Here are a few more things that can help you build and maintain a healthy portfolio:

1. Avoid Overlapping Funds

Investing in multiple funds from the same category with similar holdings can result in redundancy. Check portfolio overlap to ensure true diversification.

2. Stay Disciplined with SIPs

Systematic Investment Plans (SIPs) can help you invest regularly without trying to time the market. It’s a good way to build wealth steadily over time.

3. Be Patient

Mutual funds, especially equity-oriented ones, are designed for long-term wealth creation. Resist the urge to switch funds too often based on short-term performance.

Also Read: Simple Steps to Withdraw Money from Mutual Funds

Why Reviewing Your Mutual Fund Portfolio Matters?

Even the best portfolio needs regular check-ins. Here’s why:

• Life changes: A new job, marriage, child, or nearing retirement may call for portfolio adjustments.
• Goal progress: If you’re ahead of schedule or behind on your goals, you might need to increase SIPs or switch fund categories.
• Performance tracking: If a fund consistently underperforms its peers or benchmark, it might be time to exit.
• Market rebalancing: As equity and debt markets shift, you might need to reallocate to maintain your ideal mix.

How often should you review your portfolio?

Twice a year is a good starting point, or at least once annually. Set a calendar reminder—you’ll thank yourself later.

Wrapping Up

Building a mutual fund portfolio isn’t just about chasing the highest returns. It’s about making choices that fit your goals, time horizon, and risk appetite. With thoughtful planning, diversification, and regular reviews, you can create a portfolio that not only works for you today—but continues to support your financial journey over time.

Not sure where to begin? You can start exploring options using IndusInd Bank’s Wealth platform. However, it is best to speak with a SEBI-certified financial adviser for more clarity.