Through one of our previous blogs, we tried to explain to you, how to pick up a best mutual fund for your investment, well hope the blog was helpful to you. Investing in a mutual fund is considered as the best investment option for one’s wealth generation, but only investing and relaxing doesn’t work, there is one more thing that plays an important role in your capital appreciation and that is Reviewing Your Mutual Fund Portfolio.
At the time you select a mutual fund, you go through a lot of valuable research and analysis, and then pick up the best mutual fund for your investment, so that you can earn a good benefit, but for the same, you also need to review or better say rebalance your portfolio at times, so that you can earn a good benefit from your investments. Reviewing and rebalancing your mutual fund portfolio helps you in several ways.
Read the blog and get to know about the followings:
- Why it is important to review and rebalance your portfolio?
- How you can review and rebalance your portfolio?
- How frequent you should review your portfolio?
- Why it is necessary to review your mutual fund portfolio?
WHY IT IS IMPORTANT TO REVIEW AND REBALANCE YOUR PORTFOLIO?
Investors include different kinds of funds, like debt funds and equity funds, in their mutual fund portfolio, in order to spread and reduce the risk on their portfolio, as it is advisable that diversification of portfolio helps to reduce risks. Mutual funds are subjected to market performance, and it is not necessary that the funds in your portfolio will perform good and give positive value every time. However, some of your investments will do well at times, while others will not. It is therefore essential to review your investments from time to time and rebalance the portfolio as required.
Rebalancing your portfolio refers to, the act of adjusting the mix of assets in your portfolio so that they perform accordingly to stand for your financial goals. It ensures that your portfolio return does not depend on the success or failure of any one kind of asset in your portfolio, at any given time.
HOW YOU CAN REVIEW AND REBALANCE YOUR PORTFOLIO?
Well reviewing your mutual fund portfolio, helps you to track the performance of your fund. The easiest way to track the performance of your fund is, by using the Fund Fact Sheet. A fund Fact Sheet not only shows the performance of your mutual fund schemes, but it shows the performance of all the schemes managed by your fund house. Thus, referring to a fund fact sheet helps you to compare your scheme, with other schemes in the same category, and you can easily judge where your fund stands.
Rebalancing your mutual fund portfolio helps you to maintain your level of risk, thus it is necessary to have a right mix of assets in your fund portfolio. The primary goal of rebalancing is to achieve a target asset allocation rather than to maximize returns. You can follow the following steps to rebalance your portfolio in the right way:
- Maintaining the asset allocation mix: In order to restore and maintain the original asset allocation, investors should rebalance their portfolio, maintaining the original asset allocation will help them to stick to their financial plan regardless of how the market behaves.
Never move from your asset just because it is giving a negative return, do check other parameters, then judge wisely.
- Practicing discipline: When you rebalance your portfolio, it gives the benefits of discipline, it helps you to book benefits while selling or achieving value while buying. People often back out from investing in assets that have experienced losses recently or sell the ones that are gaining in value, however, the rebalancing discipline, can improve your risk-adjusted investment returns.
- Retain a long term focus: When certain funds of your portfolio are performing well, stay invested and enjoy the maximum returns, till they last, but do remember one thing, markets are like ‘merry go round’, so what goes up will come down eventually. Thus, consider a bit of reduction of individual holdings that have performed beyond your expectations and replace them with holdings that still hold the promise of long-term value.
HOW FREQUENT YOU SHOULD REVIEW YOUR PORTFOLIO?
Well, there is a difference between how often one should look at their portfolio and how often one should review it. It is your choice, how many times you want to review your portfolio, that is not important, the important thing is the parameters on which you will examine your portfolio. Ideally, it is advised to investors to review their portfolio at least once in six months or one year.
While reviewing their portfolio, investors do get disappointed after seeing the negative return on their portfolio, which should be avoided, as it is not going to help you in any way. Thus, an investor should go through an objective portfolio review.
While reviewing your portfolio, you should look, if there is a change in the variables/reasons like performance with respect to peers and its benchmark, how reasonable it was in terms of expenses, and many others, based on which you first selected the funds. If there is no change in these variables, then one shouldn't change the fund just because of negative returns.
WHY IT IS NECESSARY TO REVIEW YOUR MUTUAL FUND PORTFOLIO?
Every mutual fund investment portfolio must be reviewed at least once in a year to ensure, that you are on track to achieve the desired benefit for your financial goal. Here I am listing some reason why investors should review their portfolio once a year:
1. To weed out of non-performers: Reviewing portfolio helps you identify non-performing investments in your portfolio. You can know which investment is not working so that you can rebalance your portfolio and add investments that would work as per your requirements.
2. Keeping KYC details updated: If there is any change in your address proof or nominee, you will get to know about that if you review your portfolio, and you can update them as well.
3. Show all investments in annual ITR: Reviewing portfolio regularly will help you identify investments you missed to disclose in your annual income tax return.
4. Identifying investment mistakes: We make many mistakes while investing in mutual funds. By reviewing your portfolio, you can fix those mistakes occurring on a regular basis.
As of now, you would have understood the importance of reviewing and rebalancing your mutual fund portfolio, so do have a regular check on your fund's performance, and carry out the changes if required, in order to generate good returns on your investment.
Most importantly, always consult a financial planner or advisor, at the time you review your mutual fund portfolio. They will help you make the right decisions, required for your investments.
You can also contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.
(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).