Unsure When To Review Your Mutual Fund Portfolio? Read This…
Jun 06, 2018

Author: PersonalFN Content & Research Team

Review Your Mutual Fund Portfolio
Would you wear woollen apparels during summers and swimwear during winters?

And here, your reaction is…

“What a silly question! These are misfit combinations.”

However, there’s nothing wrong per se with having woollen clothes and swimwear in the same wardrobe.

Depending on your living conditions and personal choices, your wardrobe will have a combination of summer and winter special clothing. If you live in the tropical climate, you won’t need four-layered suits. But if you were to visit Antarctica, you will certainly need them.   

And how often does your wardrobe need a makeover?

What is a PMS
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It primarily depends on the quality of apparels you buy, but it’s heavily influenced by your tendencies as well.

Many times, we discard clothes that look like brand new. On the contrary, some people don’t discard apparels until they become a bit of a joke or somebody repeatedly calls them stingy.

Your mutual fund portfolio is just like your wardrobe. It requires special attention occasionally, even if you take enough care while designing it.

Before we talk about a portfolio makeover, let’s first see the things to keep mind before investing in mutual funds:

  • Your age

  • Your current financial circumstances

  • Your risk profile

  • Your investment objectives

  • The financial goals you are addressing; and

  • The investment time horizon before goals befall/realize

Based on the factors listed above, first, craft a personalised asset allocation plan.

Asset allocation refers to distributing your investible surplus across asset classes such as equity, debt, gold, real estate, or even holding cash for that matter. By allocating assets, you are essentially adopting an investment strategy which can balance your portfolio’s risk and reward keeping in mind your risk profile, your financial goals, and your investment time horizon. 

But unlike in the case of changing your wardrobe, makeover of your investment plan should not be done as per your whims and fancies; there needs to be a solid foundation behind it.

Let's see what calls for a portfolio review and rebalancing…

Portfolio rebalancing is simply the exercise of readjusting your portfolio according to changes in the circumstances, risk appetite, performance of the investment portfolio, or in the investment objectives.

What is a PMS
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  1. Change in circumstances

    You recently sold ancestral property which fetched you attractive windfall gains. Don’t you think, this event will impact your investment portfolio and your risk appetite as well?

    Consider another example; your spouse recently quit her/his job to look after your child. This may now result in lesser monthly income of the family and thus, it will have bearing on the risk profile.

    You must have realised a change in the financial circumstance severely affects your ability to stomach risk, which in turn affects your asset allocation.

    But that does not mean your risk appetite changes with changing financial circumstances alone.

  2. Change in risk appetite

    Psychologically, the risk appetite of a person can naturally lessen with increasing age sans change in the circumstances.

    Besides, the poor performance of an asset class, or for that matter the schemes, in the portfolio may change the perspective of a person about a particular asset class.

    So, the experience of a person also weighs down in the risk appetite of every individual. For example, those who lost money in the market crash of 2008, took nearly six years to regain confidence in the equity as an asset class, whether or not they were right is a different point altogether. These investors had preferred to stay with fixed income investments and gold, even when experts were screaming about the attractiveness of equity towards the end of 2013.

    Ideally, one should avoid investing ad hoc or going by what friends and relatives recommend. There’s no point aping somebody; because one man’s meat is another man’s poison. Each one’s circumstances, risk appetite, and investment time horizon are different, among many other factors. Therefore, invest in asset classes and investment avenues that are best suited for you, and make it a point to review your portfolio regularly.

    [Read: Why Mimicking Your Friend’s Investments Can Be Risky]

  3. Performance of the asset classes

    Rebalancing your portfolio with due respect to your personalised asset allocation is important. But, within each asset class, reviving the performance of each individual scheme is equally crucial.

    For example, at a broader level, allocation of equity, debt, and gold in your mutual fund portfolio remained unchanged at 65:25:10, but a few equity-oriented schemes are consistently underperforming their benchmark index and peers. In such a case, you need to weed out the underperformers after giving sufficient time and must replace them with consistent performing ones.

  4. Change in the objectives

    Consider this: Steering in accordance to your child’s aspiration of pursuing medical studies means a significant portion of your investible surplus is parked in mutual funds to accomplish the financial goal. But later, evolving and considering the opportunities in microbiology, he/she decided to pursue MS (Master of Science) abroad instead.

    In such a case, the entire calculation changes resulting in a difference in not only the specific monetary goal value, but even weighing on other vital financial goals such as your retirement. Therefore, you may need to review your portfolio thoroughly for it to be on track to achieve your financial goals.

    [Read: Step-By-Step Approach To Plan Your Child's Education Needs]

    How frequently should a portfolio review be done?

What is a PMS
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Bi-annually, you must review your investment portfolio and rebalance it as per personalised goal-based asset allocation. This is a relatively good frequency. If you have selected mutual fund schemes thoughtfully, then reviewing and rebalancing the portfolio too often may prove to be inappropriate.

[Read: 5 Ways A Mutual Fund Portfolio Review Can Boost Long Term Wealth]

Can PersonalFN help you makeover your investment wardrobe?

What is a PMS
(Source: pexels.com)

If you are confused about the health of your mutual portfolio, the investment strategy, your own risk profile, and your asset allocation; do contact your investment adviser or investment counsellor to help you.

PersonalFN can get you best results, powered by its unbiased, independent, and research-backed approach. PersonalFN can help you draw a comprehensive financial plan based on your personalised asset allocation. Reach out to PersonalFN on us on 022-61361200 or e-mail at info@personalfn.com.

PersonalFN's ethical and unbiased investment advisers will comprehensively review your mutual fund portfolio. Opt for PersonalFN's Mutual Fund Portfolio Review service to check how healthy your portfolio is and get Buy / Sell / Hold recommendations on your existing portfolio, keeping in mind the facets discussed in this article. Take action now. PersonalFN will be happy help you.

Happy Investing!

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