Reviewing your mutual fund portfolio is like a GPS tracker in a car. It ensures that you stay on track.
Just as a car needs periodic maintenance and servicing, mutual funds portfolios also demand your attention.
However, a review will examine if things are going as per that plan and if corrective action needs to be taken.
We suggest that the Investor must consider the following points to understand the importance of reviewing your mutual fund portfolio.
Goals Change
Every Investor has his personal goal which keeps on changing with time.
It is very necessary to understand and make a plan in accordance with the upcoming goals.
Factors like inflation, changes in the standard of living, addition in the family and early retirement could lead to change in Life goals.
For example- If you are starting your financial planning at the age of 27 you might not have planned your goals related to your children’s education, their marriage etc, however, after having children you will have to plan for their higher education and marriage.
When your investment portfolio is in accordance with your personal financial goals, then you are in a better position to realize your goals.
Peer performance
A periodic review helps you compare the performance of your funds with similar funds in the industry and with the benchmark returns for that type of fund.
In case your fund is not performing as per your expectations, remedial steps need to be undertaken for modifications, additions or discontinuance of SIP.
Also, the most common misunderstanding is that real estate gives the best returns.
There are many mutual funds that have outperformed the real estate returns in long run.
Changes in the Government Policies
Change in government policies directly affects the performance of the stock market.
If the government announces their budget and changes in taxation structure in mutual funds, it forces the investors to re-align their portfolio to optimize their post-tax returns.
Thus, changes in government policies, budget announcements and industry or sector policies may require a review of the mutual fund portfolio.
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Change in fund managers
The fund manager plays a crucial role in the performance of funds.
As in the case of a change in fund manager in the short term, some underperformance is faced by the fund.
Change in fund manager does not mean that the fund performance will suddenly change from good to bad or vice-versa but a close watch is required to estimate whether corrective actions are taken or the fund is dormant.
Rebalancing the portfolio due to change in market condition
You have planned an asset allocation strategy to achieve your long terms financial goals like retirement or your children’s marriage or buying a house or so on and to achieve these goals, you have invested in mutual funds.
Now suppose your allocation is 50 per cent in equity mutual funds, 40 per cent in long term debt funds and 10 per cent in liquid funds.
If equity mutual funds valuations rise significantly due to a rise in markets, your equity portfolio could shift to a higher level than the planned 50 per cent.
But your goals and investment strategy may remain the same.
So we suggest that it’s time to rebalance shifting assets from equity funds into debt funds in such a manner so as to bring the allocation back into line with 50 per cent into your equity funds.
Finally, an active Investment advisor is necessary to monitor your portfolio.
Author’s Bio
Manju Mastakar
Managing Director, Armstrong Capital Advisory Pvt. Ltd.,
is one of the innovators working to change the industry overall. Armstrong Capital provides goal-based financial planning, portfolio management service, wealth management service, retirement planning for individuals and cash flow management and currency hedging services for corporates, as well.
