Has Your Mutual Fund Portfolio Been Able To Withstand The Market Crash?   Oct 27, 2018


Like most investors, Nishit Zaveri isn't a happy man these days.

Until December 2017, he was extremely pleased with the performance of almost all the mutual fund schemes in his portfolio.

What went wrong?

The markets tumbled and his mutual fund portfolio dropped over 15% this year.

And many schemes that he held in the portfolio were re-categorized and renamed after the Securities & Exchange Board of India (SEBI)  came up with a circular on ‘Categorization and Rationalization of Mutual Fund Schemes’.

Since Nishit was worried about his portfolio returns, his bank’s relationship manager took this opportunity to churn the portfolio.

Unfortunately, along with some weak funds, the relationship manager advised him to exit from even some strong funds as well.

[Read: Investing In Mutual Funds Through Banks Is A Bad Choice. Here's Why…]

As the Nifty is down over 12% from its January high, it's natural for a large-cap fund to fall at least 7%-8%.

So why eliminate such a mutual fund scheme?

This is why you shouldn't rely on incompetent professionals who work for commissions and have sales targets to achieve.

[Read: Is Mutual Fund Categorization Affecting Your Portfolio? Review It Now!]

Like Nishit, are you also worried about falling and turbulent equity market conditions and the impact of it on your mutual fund portfolio?

Read on further to know how you should deal with the situation at hand.

We are going to help you with a systematic approach to revamp your portfolio, if at all it needs to be.

So, first let's look at how various categories of equity mutual funds have fared on an average basis…

Table 1:Returns of multiple categories of funds – Who's created wealth for you?
Category Average No of Schemes Absolute (%) CAGR (%) Absolute (%)
1 Month 3 Months 1 Year 2 Years 3 Years 5 Years YTD
Large Cap Funds 34 -6.39 -8.95 -4.49 6.01 7.79 14.48 -8.01
Mid Cap Funds 24 -7.28 -10.68 -11.24 2.98 7.75 21.52 -18.06
Small Cap Funds 13 -7.74 -11.13 -14.23 3.12 9.01 23.76 -23.59

Large & Mid Cap Funds

21 -6.93 -9.16 -7.22 5.75 8.74 17.28 -12.85
Multi Cap Funds 35 -6.48 -9.39 -6.29 5.24 7.75 16.22 -10.52
Data as on October 24, 2018
(Source: ACE MF)
In the last 1 year, the mid-caps and small-caps have been hammered, and this has weighed on the return of the funds in this category. They have truly depicted their trait of being more vulnerable, than the large-cap counterparts when the equity market hits turbulence.

However, when assessed over longer time frames (3 years and 5 years) mid-and-small cap funds have been able to generate better returns than the large-cap ones. It to some extent goes to say that if you have a longer time horizon of at least 5 years and have the stomach to assume very high risk, investing mid and small-cap funds can be a rewarding experience. Nonetheless, what matters is an astute selection of funds.

To make a broad judgement, unless your equity mutual fund schemes aren't grossly underperforming the category average returns across timeframes, your portfolio might be doing okay.


(Image source: unsplash.com)

But do note that portfolio review and rebalancing is not just limited to assessment of returns of the schemes held in the portfolio. You also ought to readjust your portfolio according to changes in your:
  • Financial circumstances;
     
  • Risk appetite;
     
  • Financial goals;
     
  • Investment time horizon;
     
  • Investment objectives;
     
  • Fund attributes of the scheme/s;
     
  • And any other factor
Doing the above is imperative for your portfolio to be well-aligned to accomplish the envisioned financial goals because there could be significant alterations in the above aspects since the first time you constructed your investment portfolio.  

[Read: Unsure When To Review Your Mutual Fund Portfolio? Read This…]  

Do remember that an unhealthy portfolio not just stops you from fulfilling your financial goals but also weakens your financial future.

Therefore, you need to set the asset allocation and invest in promising avenues.

Here are 4 benefits of reviewing your mutual fund portfolio:

  1. Identify underperformers Since laggards can drag the performance of your portfolio down, cull them out before it’s too late. This is the primary objective to review a mutual fund portfolio.
     
  2. Find suitable alternatives Once the laggards are out of the portfolio, you need to find potential winners as their replacement. And when you do so make sure that the selection of schemes is in accordance with your financial goals, investment objective, investment time horizon and your risk profile.

    [Read: Can You Achieve Your Financial Goals Without Investing In Mutual Funds? Know Here…]
     
  3. Optimally structure your portfolio Holding too many schemes in an investment portfolio with an objective of diversification is not a good idea. Remember, “Too many cooks spoil the broth”. This holds true even for your mutual fund portfolio.

    Ideally, your entire mutual fund portfolio should not have more than 8 to 10 schemes. Hence, invest in selective schemes that have proven track records and can actually help you accelerate returns without compromising on the benefits of diversification.
     
  4. Aligns the portfolio Aligning the portfolio factoring in the changes ensures that you are on track in accomplishing the financial goals and enables you to plan for the new ones.  
How frequently should a portfolio review be done?

You would benefit from holistically reviewing your investment portfolio at least bi-annually. This is a relatively healthy frequency. If you have selected mutual fund schemes thoughtfully, then reviewing and rebalancing the portfolio too often may prove to be unnecessary and disadvantageous.
 

Editor's note:

To ensure that volatile market conditions aren't taking a toll on your financial goals, we strongly recommend 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 points discussed in this article. Revamp your portfolio based on your requirements and risk profile. 

Don't delay your investment health check-up, opt for it now!



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Comments
Spm9229@gmail.com
Oct 28, 2018

Let me know atleast one scheme in which i could make investment.I will pay you as desired.
 1