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I hope you all are safe from COVID-19 Infection!

Cleaning the house and arranging the things at their original place, this is one of the daily routines in almost every house. Instead of being a daily routine, it might seem a cumbersome process to many, but once it is done, we get a feeling of relaxation in our clean house.

This scenario is similar to our mutual fund portfolio. When our mutual fund portfolio consists of well-pruned mutual fund schemes and is organized, it becomes easier to manage it. It is suggested to investors, do review your portfolio every 6 months, and do the required changes in your mutual fund portfolio as per your goals and objectives.

Cleaning your MF portfolio is a step-by-step process that is tied to your financial goals. Let us know about these steps:

1. Aligned to Goals and Objectives

Every time when you review your portfolio do check whether your portfolio is aligned with your goal or not. For this, first of all, list out your financial goals, that you want to achieve, do separate them in categories like the short-term and long-term goals.

In case, if you have new goals in your life, like suppose recently you had a baby and now you want to invest for your child’s education, consider aligning your goal with your investment, when you review your portfolio.

2. Asset Allocation

 Now you are done with preparing your list of financial targets to be accomplished, and now its turn for the asset allocation. Work out your monthly contributions towards achieving them. For your long-term goals, you can allocate your asset in Equity Mutual funds, for more than five years. For your short-term goals, you can allocate your asset in Debt Funds for 3 years or more.

It’s a function of how much do you understand asset class risk, the time in hand, and how much you can save.

Portfolio rebalancing

Currently, Equity mutual funds have been performing low, in the recent market correction. It is advised to investors if they have surplus amount, invest them in liquid funds, and transfer it systematically into equity funds, till you restore the equity-debt mix. You can also tweak the asset-allocation mix of existing SIPs in favor of equities till you hit the target.

This is called a portfolio rebalancing. In general, it is advised to carry out portfolio rebalancing once a year.

3. Fund choices

Now you have allocated your assets in funds as per your tenure of investment suitable for your financial goals. Now it is your duty, to check if the funds in your portfolio are fulfilling your investment objective, on a regular basis, but not too often.

Funds that are no longer fulfilling your investment needs, you can replace them with funds suitable for your needs. You must weed out the non-performers, that are not able to beat the benchmark returns over the long-term.

In the case of Equity Mutual Funds, review them based on relative performance over five and seven-year time frames.

4. Quality diversification is better than over-diversification

Diversifying your assets in different funds is beneficial, but only when it is done smartly. It is advised not to concentrate on a single kind of fund scheme, and invest all your fund in that, rather, divide your fund into different amounts and invest in a different kind of mutual fund scheme. But it is often asked how many funds should be added in our portfolio?

There is not any ideal number of funds fixed, that should be added to your portfolio, however, it is said that hold only about four to five equity funds with distinct investment strategies and low overlap. Two large caps and two multi caps, for instance, should suffice for building long-term wealth for most investors.

For any kind of investment query, you can contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.

Happy Investing!

(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).