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Reviewing your mutual portfolio is like a GPS tracker in a car. It ensures that you stay on track. Just as a car needs periodic maintenance and servicing, mutual funds portfolios also demand your attention.
You might have chalked out a robust plan with your financial advisor. However, a review will examine if things are going as per that plan and if corrective action needs to be taken. Consider the following points to understand the importance of reviewing your mutual fund portfolio.
Goals Change
As you move ahead, your financial goals change. Factors like inflation, changes in the standards of living, addition of financial dependents, and lead you to add, alter or drop certain goals. For example, if you started your financial planning at 25 years of age, you might not have planned your goals related to children’s education, their marriage, your travel aspirations, post-retirement life and more. Hence, the mutual fund portfolio needs to be revisited and realigned to include the new and updated goals.
Based on the new goals, you might need to start investing more. In addition, the extent of debt and equity exposure can depend upon your age while the amount to be invested can be estimated based on your increased income and savings.
Peer Performance
A periodic review can help you compare the performance of your funds with similar funds in the industry as well as the benchmark index for that type of fund.
You can also compare the performance of your fund with your initial predictions to check if your have been receiving the returns you planned for.
In case your fund is not performing as per your expectations, remedial steps need to be undertaken for modifications, additions or discontinuance.
Maintain Diversification
One must also periodically review the mutual fund portfolio to ensure that the money is diversified across sectors and themes. Review the underlying stocks that your mutual funds are investing in. Check if there is duplication of stocks among funds. However, remember that over-diversifying can be counterproductive as you spread the investments too thin.
Ensure Long-Term Investment
Remember that investing in mutual funds is like playing a Test cricket match and not a Twenty 20 game. Perseverance and measured risk taking is what will win you matches – in this case lucrative returns. While reviewing your portfolio, be patient. Understand that as long as the fundamentals are sound, long-term returns will most likely be positive. Every investment idea has its own timeframe; its performance should be critically evaluated only after this timeframe.
Manage Short term Fluctuations
Mutual funds carry market risks. Do not let short term fluctuations deter you. React only to proven macro-economic trends if they are negatively influencing your portfolio. Once you find the optimal balance in your portfolio, its performance has to be reviewed and fine-tuned periodically. Annual performance evaluation is the norm in the industry however; people do review their mutual fund portfolio on half-yearly and quarterly basis as well.
Thus, review your mutual fund portfolio from time-to-time, calculate, diversify, make long-term investments and analyse performance for productive return on investment
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