5 Ways A Mutual Fund Portfolio Review Can Boost Long Term Wealth
Sep 04, 2017

Author: PersonalFN Content & Research Team

Investors often chase star-studded mutual funds. There may be no doubt that these star performers may have done exceptionally well in the past. Unfortunately, some star performers often fail to keep up their consistent performance of the past.

If you have spent over a decade analysing mutual funds as PersonalFN has, it is common to see certain mutual fund schemes rise and fall. A fund may do unusually well over a certain period, and often it is hard to pinpoint whether this was a factor of luck or skill. If it is the former, that is, being in the right place at the right time without actually preparing for it, the fund may do remarkably well. However, it may lack the potential to deal with market complexities in the long run.

This is why it is necessary to analyse funds on both quantitative and qualitative parameters. While the quantitative factors delve in to the fund’s past performance, the qualitative aspects rate the fund manager’s experience, investment systems and processes, among other things. Many rating agencies overlook or under weigh the qualitative aspects. Thus, substandard funds tend to appear at the top of the list.

At times, even high quality funds may falter if the fund manager’s bets do not play out as expected, or if the fund is flooded with investments, leading it to change its investment strategy. Though such funds may still outscore their benchmarks, they tend to lag behind their peers.

If you have invested in such mutual fund schemes, it’s time to reassess your portfolio. You need to realise that mutual funds are not always perfect. Hence, there is a need to review your portfolio regularly to prune out the laggards and let the wealth creators grow unhindered. Regular portfolio reviews should be an essential part of your financial plan.

Here is how a regular mutual fund portfolio review can help optimise wealth creation:

  1. Cull out the underperformers

    This is the primary reason to review your portfolio regularly. You do not want the portfolio returns to be dragged down by laggards. Hence, it is essential to identify such schemes early on. At times, deciding whether to sell a fund could raise a dilemma, as there is always a probability of a turnaround. This is when you can avail the services of a professional, such as an investment adviser, who will guide you to take the right decision.
  2. Reinvest in better alternatives

    Once the investments are redeemed from inefficient schemes, the proceeds need to be invested in the right schemes. This is when the best equity mutual fund or debt mutual fund must be identified. The funds need to be picked through rigorous selection processes, keeping in mind your risk profile, investment objectives and financials goals. You may also choose to invest in existing schemes present in the portfolio.
  3. Consolidate the portfolio

    There are times when investors, left to their own devices or misguided by unscrupulous distributors / agents / relationship managers, end up with over 20-30 mutual schemes in their portfolio. Investing in 20 different equity funds will lead to over-diversification, which can lead to suboptimal returns. Invest in just 4-5 schemes under each asset class to achieve your financial goals. Investing in too many funds is not only unmanageable, it could lead to inefficient returns.
  4. Optimise diversification

    As mentioned above, you need only a limited number of schemes in your portfolio to provide adequate diversification across market capitalization and investment styles. Even if you invest in a few schemes, care should be taken that the underlying portfolio or investing styles do not overlap each other. There should be no sector or industry concentration. You need to have a mix of value and growth funds, which have different market-cap bias in order to provide efficient diversification. In short, you need to strategically structure your portfolio.
  5. Rebalance the portfolio

    In simple words, rebalancing a portfolio is correcting the deviations in the original asset allocation. For example, you invested 70% in equity, 20% in debt, and 10% in gold—after a year, equity accounts for 80% of the portfolio, and gold contributes 12%. You will then need to reduce the exposure to equity and gold by shifting to debt in order to achieve the initial asset mix. Rebalancing helps safeguard investments from a bad market phase not only by booking gains, but also by reducing the exposure to risky assets.

When planning your financial goals with mutual fund schemes, be realistic. The buying and selling of mutual fund schemes should be carefully tuned to your risk profile, investment objectives and financial goals. In financial planning, setting the right asset allocation and regular rebalancing your portfolio are key areas that ensure your financial wellbeing.

This is why we strongly suggest that you avail of PersonalFN’s Mutual Fund Portfolio Review service. PersonalFN’s ethical and unbiased investment advisers will comprehensively review your mutual fund portfolio. Here you will get Buy / Sell / Hold recommendations on your existing portfolio, keeping in mind the five action points discussed in this article. The portfolio will be revamped based on your requirement and risk profile. We highly recommend that you opt in for it.

Add Comments

Jan 06, 2018

Good to hear this. Please send me free copy. I am new to mutual funds investment. Thanks
Jun 06, 2018

I would like you to review my portfolio of mutual funds.
Nov 14, 2017


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