Things To Do To Keep Track Of Your Mutual Fund Performance & Investments
May 30, 2019

Author: Aditi Murkute

(Image source: Image by rawpixel from Pixabay)

Increasingly, people are realising that to survive and counter escalating inflation in the future, investment is the need of the hour. But what really stings an investor is the negligible growth of their investments as time goes by.

The possible reasons for this could be:

  1. Not following good investment practices,

  2. Making ad hoc investments,

  3. Investing regularly but not in the right fund.

[Read: I Don't Need Financial Planning. Is This What You Think? Read This!]

So, to improve your financial health, be mindful to assess the following points before you invest:

  1. Your current financial situation-income, personal and household expenses, assets, liabilities, etc.

  2. Future career plans and aspirations

  3. Investment objectives (growth, regular income or protection of principal)

  4. Financial goals (buying a dream home, children's education / wedding expenses, retirement, and so on)

  5. Do your risk profile

  6. Choosing the right investment avenue (equity, debt and gold) or a mix of each as per your risk profile

  7. Build a well-diversified strategic portfolio aligned to your financial goals and as per your risk profile through optimum asset allocation

  8. Invest in well-diversified funds only after conducting due diligence of the fund

  9. Review and monitor your portfolio periodically to keep a track on the growth performance of the portfolio before the financial goal/s transpires

The last point is also the most important good practice many investors procrastinate on or completely fail to do.

What happens if you do not review your portfolio?

You do not achieve your financial goals.

[Read: Are These 6 Behavioural Biases Preventing You From Investing?]

Generally, mutual funds are professionally managed by experienced fund managers from reputed fund houses which conduct thorough research and adhere to the best processes and systems.

The performance of a mutual fund scheme is linked to various factors---internal and external.

Hence you need to review your portfolio, evaluate the schemes to make renewals, rethink your investments based on the performance frequently, and weed out the non-performing ones to replace those with a high probability of good returns after every 6 months or at least a year. In short, you need to keep track of your portfolio.

Let's look at the factors that affect the performance of the mutual fund...

5-Factors-That-Affect-The-Performance-Of-Mutual-Fund
  1. Change of fund manager

    A fund manager's decision to choose an investment relates to the level of risk taken in managing equity funds while picking stocks. Smart selection skills of the manager do add value to the performance of the scheme and subsequently to your investment portfolio.

    But being over dependent on the fund manager is not the right approach either. The important thing is to look if the fund manager's appraoch is in line with the fund house's robust investment processes and systems as the erstwhile manager's style.

    Do look into the credentials of the new manager. You should evaluate any changes in the investment approach due to the appointment of a new manager to ensure it is congruent to your own.

    Plus, it is important for the fund manager to respect the mandate of the scheme and invest accordingly. Ideally, the fund manager should build and hold the portfolio with conviction (like long-term investors).

  2. Change of investment style or strategy

    A fund may have claimed to invest with a particular investment approach to stock picking, but may gradually adopt a different approach. Or a fund could metamorphose into a different category from its initial type. This potentially increases or decreases the overall risk of the portfolio that might not go down well with you.

    Every mutual fund follows a particular investment style, based on its objective and pre-defined strategy. Each investment style has its own cycle. A top performing fund that made the best in a bull phase of its investment style could end up among the laggards if the style enters an unfavourable phase.

    For instance, at the time you identified the fund, the style was on the verge of entering its next phase, which resulted in a slowdown in its performance, and loss of its star ratings. Unfortunately, this affects your investment.

    Thus, it is important that you keep track of the style integrity of your funds. Check for any alteration of the risk profile of the fund.

    To keep a tab on the investment style and strategy, go through the Scheme Information Document (SID) of the fund and other documents that mention about it to get a clear picture of what is allowed and what is not.

  3. Proportion of portfolio holdings

    Closely look into the concentration of the holdings of the fund, particularly, its top holdings. If the proportion of any one is too high it may emanate high risk. Similarly, if the proportion of holding is low, it indicates too many holdings in the portfolio, which may again not be optimal for the growth of your portfolio.

    In addition to this, read up about any changes in credit quality, duration, and yield to maturity of a debt fund of the portfolio. Whereas in terms of equity having exposure to small-cap stocks, do watch out for valuation, the Price/Earnings (P/E) ratio, Price/Book (P/B), dividend yield, etc. held in the portfolio.

  4. Fund's underperformance

    The right way to assess the performance of a mutual fund scheme is to look beyond the returns when there are short-term aberrations.

    Though the underperformance of your mutual fund investments might worry you, don't shun the  mutual funds or discontinue your Systematic Investment Plans (SIPs) hastily out of fear.

    Consider analysing the performance of your mutual fund investments not just in the recent past, but over different market cycles.

    As I mentioned earlier, based on the investment style and approach, inconsistent funds may generate high returns in the bullish phase. However, what purpose will it serve, if it can't protect the downside during the bear phase?

    [Read: A Portfolio Strategy That Could Help You Reduce Shocks Of The Equity Market]

    Besides that, compare the performance with the peers alongside its benchmark index to understand the overall returns (absolute returns and compounded annualised returns) generated by the fund. Look at the annualised returns and ratios such as standard deviation, Beta, and Sharpe Ratio as parameters for comparison.

    The factsheets shared by the fund houses can shed light on the performance of the scheme. Alternatively, online portals from research companies do provide data or tools you can utilise to compare funds online.

  5. Regulatory changes

    Regulatory changes like the recategorization of funds disrupted the performance of the funds as new categories were introduced and some funds changed their investment styles. Due to this, the overall risk profile of the fund has changed. Some funds from mid-cap were recategorized as large caps and vice versa.

    A recent change in total expense ratio norms can lead to a change in the investment style of fund managers to adopt more portfolio churning.

    Incidents like these could weigh down on the overall growth of your investment portfolio. So, keep yourself updated with any regulations that are being introduced via circulars, press releases.

    Now that you know what affects the performance, how will you track your investments?

    [Read: How Will Modi 2.0 Drive The Performance Of Your Mutual Fund Portfolio]

Over the years, for different time horizons and various goals if you have made investments, you need to have records of it. So, when you want to exit, you can do it seamlessly. It is important to have a record of it altogether.

  • Based on a folio number you can foremost track the number of units allotted to you. You are required to quote the folio number to know the value of your investments at the time of any transactions.

  • A Consolidated Account Statement (CAS) provides a consolidated view and valuation of your mutual fund investments of various fund houses under your PAN number. You can request for a copy from CAMs or KARVY to issue this statement either as an email or hard copy once in six months if there were no transactions during the month. Click here to get your statement.

  • You can use online platforms or investment trackers freely available to keep a record of your investments. Such trackers can provide an updated/latest valuation of all investments you hold.

  • Ensure that your personal and bank account information is updated with the fund house, so that you don't encounter any problems during redemptions.

Conclusion:

Making prudent investments is like half the job well done, but tracking is undoubtedly the most important good practice you can do for your financial health and a blissful future. So, remember to review and monitor your investments every six months.

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