A Guide for Investing in Mutual Funds as a Couple

As a couple, there are plenty of things that coincide between you two. Sharing life with your significant half means making collective decisions on plenty of matters ranging from the household stuff to the essential goals.But do you plan for the same collective nature when it comes to investment schemes? That’s something that many couples are still trying to figure out. Find everything you need to know about investing in mutual funds together as a couple down below.

You may have invested into a set of mutual funds while your better half may have their investment into another set. This is where finding that sweet spot for a strategic financial decision is ever warranted to create a fruitful long-term financial gain. Let’s check out the different scenarios and how you can strive to make a strong portfolio together.

• Mutual Fund Overlap: This is supposedly a scenario where you and your other half have invested in the same set of mutual funds schemes. Let's take this for a case; you may have an investment into two equity funds, i.e. A and B; while your other half has another set, i.e., C and D.*The numerical values denote the numbers of shares held in the company as part of the mutual fund scheme's asset class.As per the table, Fund A invests your money into ABC Company and XYZ Company. Similarly, Fund C of your spouse invests into DEF Company and XYZ Company. You can see that both of these funds have a common asset class. This is what overlapping refers to. Likewise, Fund B of yours and Fund D of your spouse also overlap when it comes to MNO Company.There are two ways to look at it, the companies that overlap between both of your portfolios may perform great, and you may be onto something big. But if it doesn't, then you both lose out. And this defeats the whole theory of diversifying your investments to reduce the risk factors. Aren't mutual funds meant for diversified investment?
• Diversified Portfolio: Let's take the aforementioned case once again. For say, if you only have investment into Fund A and supposedly, your spouse has invested only into Fund D. Both of them do not overlap and create a diversified approach. This can be fruitful to mitigate the risks and keep your investment afloat. Such an approach can give you room to invest in multiple asset classes without having to shelve more.

• Have a shared vision: First things first, it's wise to sit down and build a shared vision whenever you start your investment journey. This helps you to plan your investments well to meet your goals. Although you are a couple, you both are an individual of your own with different thoughts, preference, and goals.One of you may look for early retirement while the other one may favour a balanced life throughout. This is where the talk will come in handy. Explain your goals and targets and note down the goals of your partner. It is essential to build a shared vision where you both can factor in the right goals. Segregate your financial goals into stages like the short term and long term. This will give you the option to select the mutual fund investment accordingly with the desirable results.
• Investment Approach: Once you have settled down on the vision, you can take the next step for it. You can either invest individually to complement each other's goals or invest jointly into a different set of funds. If you take the individual routes, you can invest in retirement funds while your spouse can invest for short term needs complementing each other. This may create an overlapping effect at times, but since you both aim for different goals, it can be managed well.On the other hand, if you want to invest jointly, you can look for the different mutual fund options and select them. For example, say there's a Fund A that can suit your needs for the long term and a Fund C that looks good for short-term goals, then you can invest in both of them. This reduces the chances of overlapping as you can know the asset class you are going to invest into beforehand. It also gives you leverage to invest in a different class of assets with the joint income of you both.
• Pre-define the Risks: The market is unpredictable and filled with risks. There may be times when your investment scheme may underperform. Factor this into your investment plan and pre-define the risks. This will help you know the level of hit you can take in an adverse situation for an asset.For say, if you have four mutual fund investment schemes ongoing, and one of them is underperforming. This means, around 25% of your funds are underperforming. But if you have 10 investment schemes ongoing and one of them is underperforming, then it comes down to 10%. Can you take a hit on one of your assets? That’s something pre-defining the risks level can help you with.
• Track your Investments: Tracking and pre-defining risks go hand in hand when it comes to a mutual fund. Always keep tracking your investments and see how they are performing. This gives you a clearer picture of your investments and shows you if it's within your risk-taking range. With trackability, the picture becomes clearer, and you can make changes as desired if needed. This also helps to weed out any underperforming assets and replace them with good performing ones.
• Take Professional Guidance: Most of the couples these days are working. This means managing their workload, daily life and investments can be hectic. This is where having professional guidance can help you manage your financial planning and plan your goals. A well-known expert in the field can help guide you towards a better financial pathway as a couple.

Investing in mutual funds as a couple comes with their own set of benefits. As a couple, being clear on your goals and sharing a vision can help align your mutual fund investment portfolio and give you better chances of yielding good returns on your investment whilst mitigating the risks. Make sure that you don’t overlap the portfolio.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.