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Why reviewing your portfolio periodically is imperative?

Posted on: September 8, 2021 | By:

Reviewing your mutual fund 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. However, a review will examine if things are going as per that plan and if corrective action needs to be taken. We suggest that Investor must consider the following points to understand the importance of reviewing your mutual fund portfolio.

Goals Change

Every Investor has his personal goal which keeps on changing with time. It is very necessary to understand and make a plan with accordance to the upcoming goals. Factors like inflation, changes in the standard of living, addition in the family and early retirement could lead to change in Life goals.

For example- If you are starting your financial planning at the age of 27 you might not have planned your goals related to your children’s education, their marriage etc, however after having children you will have to plan for their higher education and marriage. When your investment portfolio is in accordance with your personal financial goals, then you are in a better position to realize your goals.

Peer performance

A periodic review helps you compare the performance of your funds with similar funds in the industry and with the benchmark returns for that type of fund. In case your fund is not performing as per your expectations, remedial steps need to be undertaken for modifications, additions or discontinuance of SIP. Also the most common mis understanding is that real estate gives the best returns. There are many mutual funds who have outperformed the real estate returns in long run.

Changes in the Government Policies

Change in the government policies directly affects the performance of the stock market. If government announces their budget and changes in taxation structure in mutual funds, it forces the investors to re- align his portfolio to optimize his post tax returns.

Thus, changes in government policies, budget announcements and industry or sector policies may require review of mutual fund portfolio.

Change in fund managers

Fund manager plays a crucial role in the performance of funds. As in the case of a change in fund manager in the short term some underperformance is faced by the fund. Change in fund manager does not mean that the fund performance will suddenly change from good to bad or vice-versa but a close watch is required to estimate weather corrective actions are taken or the fund is dormant.

Rebalancing the portfolio due to change in market condition

You have planned an asset allocation strategy to achieve your long term financial goals like retirement or your children’s marriage or buying a house or so on and to achieve these goals, you have invested in mutual funds. Now suppose your allocation is 50 percent in equity mutual funds, 40 percent in long term debt funds and 10 percent in liquid funds. If equity mutual funds valuations rise significantly due to rise in markets, your equity portfolio could shift to a higher level than the planned 50 percent. But your goals and investment strategy may remain the same. So we suggest that it’s time to rebalance – shifting assets from equity funds into debt funds in such a manner so as to bring the allocation back into line with 50 percent into your equity funds.

Finally, an active Investment Advisor is necessary to monitor your portfolio.