How to review your mutual fund portfolio?

Reviewing your mutual fund portfolio is a crucial practice to ensure that your investments are aligned with your financial goals, risk tolerance, and market conditions.

Here’s a step-by-step guide to effectively review your mutual fund portfolio online:

Compare Performance

• Evaluate Returns: Compare the performance of your mutual funds against their respective benchmarks and peer funds. Analyze returns over different periods (1 year, 3 years, 5 years) to get a comprehensive view of performance. Below-average returns mean the investor should change the fund.

• Check Consistency: Look for consistency in returns rather than sporadic high performances. Consistent performance indicates a well-managed fund. Inconsistency in fund returns can have a huge impact on returns in the long term.

Review Asset Allocation

• Diversification: Ensure your portfolio is well-diversified across various asset classes such as equity, debt, and hybrid funds. Diversification helps in managing risks and achieving balanced returns. Diversify if you are under-diversified, and reduce the number of schemes if you have multiple schemes.

• Rebalancing: Periodically rebalance your portfolio to maintain the desired asset allocation. Rebalancing involves adjusting your holdings to realign with your investment strategy. For example- If your asset allocation was 60:40 (equity: debt) and if your equity allocation is 70% now, you need to reduce it to 60%.

Analyze Risk

• Risk-Adjusted Returns: Evaluate funds based on risk-adjusted returns using metrics like Sharpe ratio or beta. Higher risk-adjusted returns indicate better performance relative to the risk taken. Furthermore, evaluate the turnover ratio; a higher turnover ratio is advantageous if the fund is providing extra returns; otherwise, it will eat into the returns.

• Volatility: Evaluate the volatility of your fund with the average volatility of peer schemes. Funds with higher volatility may offer higher returns but also have increased risk. Make sure the volatility is in line with your risk tolerance. Small caps generally have higher returns but it also offers higher returns.

Examine Fees and Expenses

• Expense Ratios: Review the expense ratios of your funds. High expense ratios can erode returns over time. Compare with other funds to ensure you’re not overpaying.

• Exit Loads: Be aware of any exit loads (charges for redeeming units before a certain period). These can impact your returns if you need to withdraw funds prematurely.

Check Fund Management

• Fund Manager’s Track Record: Research the fund manager’s experience and track record. A capable fund manager is crucial for consistent performance. Change in fund manager may impact a particular scheme due to a change in the investment style of the newly appointed fund manager.

• Fund House Reputation: Consider the reputation and stability of the fund house. Established fund houses with good track records generally manage funds more effectively. Any mess like Franklin Templeton could lead to massive withdrawals in the short term.

Align with Financial Goals

• Goal-Based Investing: Make sure each mutual fund is in line with your financial goals (retirement, education, buying a home). If some funds no longer suit your objectives, adjust your portfolio. If you are getting close to the goal, it is better to redeem gradually rather than redeeming all at once and invest the proceeds in safe fixed-income assets.

• Time Horizon: Consider your investment time horizon. Equity funds are suitable for long-term goals, while debt funds may be better for short-term objectives. If you are getting closer to the time when you have to redeem your investment, it is better to redeem gradually rather than all at once.

Monitor Market Conditions

• Economic Indicators: Stay informed about macroeconomic indicators and market trends. These can impact your portfolio and might necessitate adjustments. If the market as a whole is underperforming due to systemic issues, do not sell your units, as history has shown that the market usually recovers and redeeming at a time of decline is often a regrettable action.

• Sectoral Trends: Keep an eye on sectoral performances. Shifts in sectoral trends can affect specific mutual funds, especially sector-focused ones. Generally, sector mutual funds are not recommended, but sector-specific schemes can be redeemed if the overall sector is performing poorly.

Regularly reviewing your mutual fund portfolio ensures that your investments remain aligned with your goals and market conditions. 

If you need a comprehensive and instant review of your mutual fund portfolio online, visit Mutual Fund Health Checkup tool for expert insights on your portfolio and tailored recommendations.