[Read: Is Your Mutual Fund Portfolio Strategically Placed As The Economy Slows?]

However, this should not stop you from investing in your financial future; remember volatility and market go hand in hand. For your financial wellbeing, it is vital that you build a solid portfolio of mutual funds without waiting for the market to settle to a comfortable position, so start investing now. It is pertinent to note that timing the market is a futile exercise.

The good news is that demand is expected to rise during the festive season, and coupled with recent measures from the government and the RBI to resolve the issues ailing the economy, the outlook seems optimistic for the equity market.

Navratri led the onset of the festival season and with Diwali, the festival of lights, joy and prosperity just around the corner; something about the festival lights up our temperament with positivity and hopes of a new beginning.

Diwali is considered an auspicious occasion which makes it a good time to start investing. So don't procrastinate, here is how you can brighten your mutual fund portfolio:

Before you start building your mutual fund portfolio, you need to clearly define your goals and categorise them as short, medium, and long-term. Your long-term goals can include your retirement, children's education/marriage, while short-term goals can be building an emergency fund, planning a vacation, etc.

Thereafter, keeping in mind your risk appetite and investment horizon you can pick funds from the different categories, sub-categories, and investment styles for your portfolio. Diversified equity mutual funds are your best bet for medium to long term goals, while for short term goals you can opt for short term debt funds and bank deposits.

But you cannot just pick any fund for your portfolio. You need to select winning mutual funds that can help you beat inflation, tide over volatility, and more importantly, enable you to achieve your desired goals.

The most prudent way to select winning mutual funds is by analysing the fund's performance based on various quantitative and qualitative parameters. Select the fund that has consistently performed better than its benchmark and category peers across market phases and cycles and has rewarded investors with superior risk-adjusted returns.

Along with this, assessing the qualitative parameters is equally important. This involves determining the quality of the fund's portfolio and the efficiency of fund manager/house. Chose a fund house that has a substantial performance record and follows robust investment process with adequate risk management system in place.

[Read: How To Check If A Mutual Fund Scheme Is A Consistent Performer Or Not]

At PersonalFN, we have developed S.M.A.R.T. score fund selection matrix to select mutual funds based on these five variables test, viz.

✔ Systems and Process

✔ Market cycle performance

✔ Asset management style

✔ Risk-reward ratios and

✔ Performance Track Record

Investment is an individualistic exercise as every person's goal, risk profile, and personal and financial circumstances differ from one another. Therefore, you must avoid imitating someone else's investment style and portfolio.

While selecting funds for your portfolio make sure that you follow a personalised asset allocation plan. Large cap fund, multi cap fund, and value style fund can form the `Core' part of your portfolio, while mid-cap fund, large & mid-cap fund, and aggressive hybrid fund can be part of your `Satellite' portfolio.

[Read: Why It Is The Best Time To Build A Strategic Mutual Fund Portfolio To SIP Into]

Structure your portfolio by carefully assigning weights to each category and scheme selected for your portfolio. It will not help you if you hold too many funds in your portfolio. This is because beyond a point diversification can become counterproductive and fail to generate higher returns.

You can opt for the SIP route of investing in mutual fund that works on the principal of investing regularly in a disciplined manner to build wealth over a period of time. If you opt for the SIP route, you will not have to time the market as opposed to the lump sum mode of investment. You will also benefit from lower investment cost and compounding of wealth.

Here are some of the common mistakes you must avoid while investing through SIP:

1. Choosing a high/low investment amount

2. Choosing a short investment tenure

3. Stopping SIP due to short-term volatility in the market

4. Investing and forgetting about it

5. Not choosing the step-up option

Once you have built a solid mutual fund portfolio conduct a periodic review of the portfolio to check if you are on track to achieve your goals and whether there is a need to rebalance the portfolio.

So this Diwali, while you indulge in the festive fervour, make sure you carefully deploy your wealth for a brighter future.

Editor's Note: If you wish to select the best mutual fund schemes-equity and debt mutual fund schemes --to address your future financial needs, I recommend that you subscribe to PersonalFN's unbiased premium research service, FundSelect.

​​​Additionally, as a bonus, you get access to PersonalFN's popular debt mutual fund service, DebtSelect.

Each fund recommended under FundSelect goes through our stringent process where we assess each one on both quantitative as well as qualitative parameters.

Every month, PersonalFN's FundSelect service will provide you with insightful and practical guidance on equity mutual funds and debt mutual fund scheme -the ones to Buy, Hold, or Sell.

If you are serious about investing in rewarding mutual fund schemes, subscribe to PersonalFN's flagship mutual fund research service FundSelect today!

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