A mutual fund portfolio is a group of investments by an individual that focuses on the pooled investment vehicles known as mutual funds. These funds take capital from different sources and invest it in various different securities throughout the market. The great benefit of a mutual fund portfolio is that it provides outstanding portfolio diversification, which helps to protect investment capital and minimize risk. Investors should base the funds within their portfolios on their individual investment goals in terms of risk management and growth potential.
Many investors often take a selective approach to their investment opportunities, attempting to pick one or a few out of the practically limitless investment instruments available to them. The problem with this approach is that it leaves an investor vulnerable, especially if he chooses only a select few assets and one or more of those assets underperform. On the other hand, a mutual fund can give an investor the access to multiple securities at a fraction of what it would cost to buy them outright. A mutual fund portfolio is one of the safest ways to grow capital available to the common investor.
The strength of a mutual fund portfolio is based on the funds contained within it, so an investor should select the funds most closely related to his investment desires. Funds may be divided up depending on the types of securities on which they invest, such as bond funds or equity funds. They may also be classified by the size of the investments within them, such as large-cap funds which focus on blue-chip stocks versus small-cap funds which purchase cheaper stocks. In addition, some funds may concentrate solely on a certain sector of the market, like technology funds.
Most investors can find all of the information they need to build a solid mutual fund portfolio by looking at the investment prospectus offered by each individual fund. The prospectus will detail the types of investments within, the fund's projected return on investment, the risk levels of the investments, and information about the fund managers. Viewing this information can help an investor choose the proper funds for a portfolio.
In a sense, building a mutual fund portfolio is a way for investors to get practically limitless diversification. One fund usually provides a degree of diversification all by itself, meaning that it exposes investors to several securities to minimize risk. With a portfolio composed of entirely mutual funds, the possibilities for diversification multiply exponentially for the investor with each fund included.