Mutual fund investments have become the go-to option for millions of investors, however, not every portfolio is successful. So, wouldn’t it just be easier to simply follow the portfolio of a legendary investor and make profits? If only it were that simple, then every investor would be sitting on profitable portfolios. However, that is not the case. So, what is the solution, to copy a portfolio or not? Check out this blog to get an answer to this question and create robust portfolios.
Creating a successful mutual fund portfolio is important for building long-term wealth, especially for investors who want to grow their money safely and steadily. To achieve this, investors need to understand the key ingredients needed to create a successful portfolio. These ingredients or factors are explained below.
Before you invest in any mutual fund, it is important to know why you are investing. Are you saving for your child’s education, a home, retirement, or just general wealth creation? Knowing your goal helps you decide how much to invest and for how long. Goals can be short-term (1–3 years), medium-term (3–5 years), or long-term (5+ years). For example,
Short-term goal - Vacation or emergency fund
Medium-term goal - Buying a car or a house
Long-term goal - Retirement planning or children's education
Every investor is different when it comes to taking risks. Some people are okay with ups and downs in their investment value (risk takers), while others want stable returns (risk-averse). Your risk profile will decide what types of mutual funds are suitable.
High Risk - Equity mutual funds (for long-term wealth creation)
Medium Risk - Hybrid mutual funds (a mix of equity and debt)
Low Risk - Debt mutual funds (for stable and safer returns)
If you are young, you may afford to take more risks because you have time to recover losses. Older investors may prefer safer options.
Diversification means not putting all your money in one type of fund. Instead, spread it across different fund types to reduce risk. A balanced mutual fund portfolio might include,
Equity funds (large-cap, mid-cap, small-cap)
Debt Funds (short-term, long-term, liquid funds)
Hybrid Funds (a mix of equity and debt)
Index Funds or ETFs (track market indices like Nifty or Sensex)
This way, if one part of the market performs poorly, the others can balance it out.
When picking specific mutual funds, consider factors like,
Past performance over 3, 5, and 10 years
Fund manager experience
Expense ratio (lower is better)
Ratings from agencies like CRISIL or Value Research
Some popular mutual fund types include,
Large-cap Funds (stable and less risky)
Mid and Small-Cap Funds (higher returns, higher risk)
ELSS Funds (offers tax benefits under Section 80C)
Liquid Funds (good for emergency funds)
Systematic Investment Plans (SIPs) allow you to invest a fixed amount every month. This helps in building the habit of saving and reduces the impact of market ups and downs. It is better to start early and invest regularly, even if the amount is small. SIPs also benefit from rupee cost averaging and the power of compounding.
Once your portfolio is built, you should check it at least once a year. If one fund is not performing well or your goals have changed, it may be time to rebalance. For example, if your equity funds grow too much and increase your risk, you can shift some money to debt funds to stay balanced.
Mutual funds are taxed based on the type and holding period as per the Income Tax Act.
Equity Funds - 12.5% tax on LTCG (exemption up to Rs. 125000 gain/year) and 20% tax on STCG.
Debt Funds - STCG taxed as per income slab and LTCG taxed at 12.5% without indexation benefit.
Investors can also use ELSS if the aim is both long-term returns and tax savings.
Do not chase only high returns or last year’s top performer
Do not exit in panic during a market fall
Do not invest without understanding the fund
Do not ignore expense ratios and tax implications
Copying a mutual fund portfolio means looking at the list of mutual funds that another successful investor or expert is investing in, and then choosing to invest in the same funds in similar proportions. The idea is to follow someone who has more experience or knowledge, hoping that their investments will give good returns. For example, if a well-known investor or financial advisor has a portfolio with 50% in large-cap equity funds, 30% in debt funds, and 20% in mid-cap funds, you might decide to copy that same mix for your own investments. Many new investors do this by looking at model portfolios shared on financial websites, YouTube channels, or apps. While copying can give you a starting point, it is important to understand that what works for one person may not suit another. Every investor has different goals, risk capacity, and timelines. So, blindly copying without thinking about your own needs can lead to poor results. It is better to use such portfolios as a guide and then adjust them based on your own financial situation.
While copying a mutual fund portfolio might seem like a quick and easy way to start investing, it comes with several risks. These risks are explained hereunder.
One of the biggest dangers of copying someone else’s mutual fund portfolio is that your financial goals may not match theirs. For example, a 50-year-old investor may invest mostly in safe debt funds for retirement, while a 25-year-old might focus on high-growth equity funds. If you copy the 50-year-old’s portfolio, you might miss out on the higher returns you could earn at your age. Similarly, someone saving for a child’s education in 10 years will invest very differently from someone planning to buy a house in 2 years. So, simply copying a portfolio without checking whether it suits your goals can hurt your financial progress.
Every person handles risk differently. Some investors are comfortable with big ups and downs in the value of their investments, while others get stressed if their money drops even a little. If you copy a high-risk portfolio but are not comfortable with losing money in the short term, you may panic and sell during a market fall, leading to losses. The mutual fund portfolio you copy might have worked well for someone who is patient and experienced, but that does not mean it will suit your comfort level.
Mutual fund portfolios that performed well in the past may not perform the same way in the future. Markets change based on economic conditions, interest rates, government policies, global events, and more. A fund that did well last year may underperform this year. If you copy a portfolio just because it worked for someone recently, you may be investing in funds that are no longer the best choice. It is like trying to drive a car by only looking in the rear-view mirror, it can be risky.
When you copy someone’s portfolio, you may not fully understand why they chose each fund. You might not know the fund’s strategy, how it invests, or what sectors it focuses on. Without this understanding, you will not know when to sell, switch, or stay invested. For example, a sector-specific fund like a technology fund may do well for a short period, but if the sector goes down, you may not be ready for the fall. Understanding a fund helps you make smart decisions, something you miss when you copy without research.
When you copy someone else’s portfolio, you lose the chance to customise it for your own life. A good mutual fund portfolio should consider your income, family responsibilities, lifestyle, savings habits, and future needs. A copied portfolio is like wearing someone else’s clothes, as it might fit poorly and not feel right. You might invest too little or too much in a particular fund without realising how it affects your future plans.
We have seen the perils of blindly copying a portfolio and the damaging effect it can have. So does that mean you should never copy another investor’s portfolio? The answer is you can, but with caution. Investors can be inspired by portfolios of legendary investors or successful fund managers while keeping in mind the following points.
Understand personal investment parameters like risk, investment horizon, investment goals, etc. and fine-tune the portfolio to suit them
Consider the investor’s background and their track record to make sure they are not random people on social media.
Use the portfolio as a guide or a blueprint rather than blindly copying it.
Do basic research about the fund and its asset allocation to ensure it aligns with investment goals.
Start with a small capital to test the waters
Avoid any sector-specific funds or funds that you do not understand
Consider taxation and exit load to understand the net return expectations
Review and rebalance the portfolio every 6-12 months to weed out any funds that no longer match personal investment parameters.
Consult a financial advisor, if needed, and personalise the portfolio.
Copying a successful mutual fund portfolio seems like the easiest way to have profitable investments without any legwork. However, while this sounds too tempting, investors should avoid doing so as the result can be quite adverse. Hence, the ideal way would be to take lessons from successful investors on how they approach their portfolio or their investment strategy and tailor it to meet personal investment parameters and investment goals.
This article addresses one of the key questions in mutual fund investing and the cautions to be used while copying a mutual fund portfolio. Were you among the investors looking to copy a portfolio? We hope this article was able to show you the right steps in this direction and clear your queries. Let us know your thoughts on the topic.
Till then, Happy Reading!
Read More: 5 Reasons to Consider Mutual Fund for Child Education Planning
Marisha Bhatt is a financial content writer @TrueData.
She writes with the sole aim of simplifying complex financial concepts and jargon while attempting to clarify technical and fundamental analysis concepts of the stock markets. The ultimate goal is to spread vital knowledge and benefit the maximum audience. Her Chartered Accountant background acts as the knowledge base to help clarify crucial concepts and create a sound investment portfolio.
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