To build a mutual fund portfolio, there are no hard and fast guidelines. It should, however, be based on two fundamental ideas. The first rule is to align your investments with your ambitions. Mutual fund investments cannot be made separately. The discipline guiding principle is the second one. The mutual fund portfolios are about investing over time, not in real time.

Step 1: Start With your Goals and Tag Each Mutual Fund to Specific Goals

This is the beginning of it all. 

Start with your goals in mind if you want mutual funds to work in your favour. 

You must establish specific life goals and assign a monetary value to them since, no matter how quickly you run, it will be pointless if you don't know where you're going

How much do you need for your child's education and how much do you need for your retirement fund? 

How much do you need to save for an exotic vacation and how much do you need to save for your house loan margin?

Your asset allocation will be determined by these inquiries. For instance, you might assign debt funds to short- and medium-term goals and equity funds to long-term ambitions. You must provide the target amounts and time frames for each of your goals. The most crucial step in attaching specific cash to your goals is now explained. Every mutual fund holding needs to be assigned to a particular objective. A, B, and C are referred to as retirement funds. Funds E, F, and G, on the other hand, are for your daughter's college fund, etc. By tagging your mutual fund investments, you can clearly track how they are performing in relation to these particular objectives.

Step 2: SIP Route is the Best Way to Create Mutual Fund Portfolio

In this stage, we find a solution to the conflict between investing in lump sums and using systematic investment plans. Which one should you choose? The SIP technique to investing has many notable benefits. First off, building a long-term mutual fund portfolio is primarily about discipline, which has less to do with investing. Wealth creation becomes a passive process once the discipline of SIP is ingrained.

SIPs link your cash flows to the investment allocations you make. A monthly SIP ensures that you won't have the problem of cash flow mismatch because inflows are typically monthly. Last but not least, rupee cost averaging is an advantage of SIPs because they are staggered investments. In essence, when markets rise, you get more value, and when they fall, you get more units. It works similarly to the heads I win, tails I don't win situation.

Step 3: You Need to do Your Homework Before Investing in Mutual Funds

when you are trying to invest towards your objectives. You give the mutual fund the responsibility for wealth growth, but you are still responsible for maintaining leadership. Before investing in the funds, you must conduct thorough research. Your goals must align with the money you purchase. For instance, it is impossible to purchase a high risk fund for a low risk purpose, and the opposite is equally true. You can pick from a variety of equity and debt funds. You can choose between growth and dividend schemes. Additionally, you have the choice of regular or direct options. There are numerous options open to you.

When building a mutual fund portfolio, you should place more emphasis on the stability of prior returns than on CAGR, which is frequently deceptive. Since the growth option is an automatic wealth compounder, always choose it above the dividend option. They also have better tax acumen. Whether you should choose direct options over conventional ones depends on your ability to make a wise decision on your own or whether you require professional assistance. Direct options essentially lack counsel, although having significantly reduced costs.