Examine Sector Weightings and the Fund’s Concentration:

The funds that have large stakes in just one or two sectors are expected be more volatile than the evenly diversified funds. A concentrated portfolio may also get more successful if its stocks are performing better. You may add a concentrated fund in your portfolio but mostly the concentration should be in a diversified fund which is more predictable.

Invest in a few funds and develop a Plan:

But it would not mean you should invest only in one fund. Even though the funds are diversified, many funds go though a few years of poor performance. When you invest in only one fund, you might lose heavily. On the other hand, investing in too many funds may lead to duplication of many securities and a portfolio with no focus. For the long-term financial goals, equities are the best option.

Keep It Simple:

To keep the selection of fund simple, you should stick with well diversified and well established equity funds, an index fund for equity exposure and a floating-rate bond fund for fixed income exposure. For long term perspective, equities are the best performing asset class. One should normally stay away from speciality and sector funds because they have a huge risk associated.

Know Your Portfolio & Ignore the hot stocks and funds:

Avoid going for impulsive purchase. It is wise to invest in a fund that invests in stocks that make up an index. This way, you will do no worse than the market. Since, in the long run, markets have a tendency to go up, even your investment will move the same way. But in case, you are a little more active, you can go for established `value’ funds that invest in undervalued securities.

Invest Regularly:

Investing a little bit of money each month is the surest way to reduce the risk of investing. Investing on a regular basis is the key to success. Irrespective of the fund you choose, the reality is that its value will be keep going up and down. One can expect a reasonable price in the long term by investing on a regular basis.

Diversification is suitable for many investors:

It is generally true that stocks perform better than any other liquid investment. So in case of long-term horizon and if you are comfortable with the risks associated with the stock market, you can think of investing in stock funds. But in case you are a slightly conservative, you may think of investing in different asset classes such as stocks, bonds etc. The key challenge is to choose the right fund.

Assess Performance Appropriately:

Past performance is not necessarily a good indicator of future results and this fact should be kept in mind every time one consider investing in any fund. Avoid investing in a concentrated fund and focusing on short-term returns. Generally while choosing a fund, one should look for above-average performance over a period of time.