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4-Step Guide to the Investment Process

Updated: Apr 24, 2023

Objective — Portfolio — Fund — Evaluation


investment process


Successful investing is a long-term journey and not a once-and-done deal. How to start with your investing journey? What do you need to understand to become a prolific investor? What does a good investment process look like?


These four steps will help you get an overall gist of the investment process to take prior to selecting and investing in the best funds as per your suitable needs



Investment process


1. Define your Investment Objective


Before you start investing or look for building a portfolio, you need to assess the following three major factors:


Financial Goal — Capital Outlay — Risk Appetite.


Understanding your financial goals gives direction to the portfolio while Capital Outlay and Risk appetite play a primary role in deciding the kind of assets you can purchase for the portfolio.


This step provides a benchmark to be able to evaluate your portfolio’s performance.


You need to clearly define goals and quantify them so that the assessment can identify any gaps between your current investment strategy and the stated goals.




2. Building a suitable portfolio


Once you identify your objective and understand risk appetite, you now have the tools to build a good portfolio:


The key to successful investing is Diversification. That means investing in different types of investment options depending upon your risk-return balance. The basic four portfolio types that you can choose from are:


  • Aggressive portfolio–An investment strategy that includes assets, that give high risks and rewards.

  • Defensive portfolio — Includes assets that are least sensitive to market movements

  • Income portfolio– Includes assets that provide regular dividends or profit distributions to their owners.

  • Hybrid portfolio– Investment strategy which is a combination of multiple assets like commodities, equities, bonds, and real estate


It is important to choose the right type of portfolio category, and you can gain better clarity by considering professional consulting.



3. Choosing the Right Fund


Now that you know what portfolio type works best for you, choose what funds to invest in. Only the right funds will help you to imply the strategy efficiently.


You need to research and explore different funds, to choose the best fund for you.

Majorly assets can be categorized into two broad categories:


  • Assets for low-risk appetite — Fixed-income Funds and Good Bond Funds.

  • Assets for high-risk appetite — Managed Portfolios and Multicap Equity Funds.


After identifying the best option, filter out the best investment option through research. There are various tools and techniques to identify the right fund but sticking to the fundamental and technical analysis never fails.


The fundamental analysis measures the underlying value of an asset by studying the prospects of the company, its industry, and the economy.


On the other hand, technical analysis is concerned with using charts and indicators to predict how the price of a security will change in the future. You can use either one of these methods or a combination of both, to carry out useful research.



4. Evaluating your Portfolio’s Performance


Once the portfolio planning phase is implemented, the management and managing process begins. Continuous monitoring and measuring the portfolio’s performance relative to the benchmark is necessary to make your money work efficiently for you.


This is the most important step in the investment process, it determines if the allocation is still on target to track the investor’s risk-reward profile.


If it’s not, then the portfolio can be rebalanced, selling investments that have reached their targets, and buying investments that offer greater upside potential.


There is no apt DIY Investment Process to suit your financial objectives and risk profile, they vary from individual to individual. It is best suited if you take this financial journey under the guidance of a professional.



 


All in all investment management is a continuous process and requires deliberate and precise portfolio planning. Therefore, we recommend a professional manager to help you through this journey!



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