Aditya Birla Sun Life Mutual Fund

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Do you review your mutual fund portfolio periodically? Here are 5 reasons you should

Feb 25, 2018
5 mins | Views 162

Rohan was humming a tune as he started his journey to Lonavala. He loved the weather. He loved the views. Most of all, he loved the freedom of travelling alone. But, after covering a few miles, Rohan stopped humming. He realised that he was lost. Rohan should have used a tracker. Keeping a track of things is important. Knowing your starting point and your destination is not enough- the journey is equally important. Mutual funds (MFs) work on similar principles.

There are many reasons why you must keep a track of your MF portfolio. Here are five of them:

Goals

A Play Station is what you may have craved at 20, but at 40, you may now want a property in your name, or you may wish to save for your daughter’s wedding. As your goals change, your investments must too. This is an essential part of your regular portfolio review and rebalancing.

Risk appetite

When Rohan was young, all he had to worry about was his phone and dinner date bills. Now he is married and has a child. He is responsible for his needs and those of his family, and his risk appetite has reduced. When you are young, you have a better risk appetite, which is why your financial portfolio may be majorly in equity. You might even go for an all-Equity portfolio. But, with increasing responsibilities, you may want to opt for a mix of debt and equity. This change can only happen if you, like Rohan, review your portfolio regularly.

Macro-economic factors

Every industry is shaped by a set of factors that influences it. Government policies and economic factors affect the financial markets. You must review your portfolio to realign it with these dynamic factors. Suppose the Reserve Bank of India (RBI) introduces a cut in the interest rate. This would require you to restructure your portfolio. You may now want to invest more in debt funds as the rate cut increases the price of government bonds. Changing taxation policies also affect your restructuring decision.

Peer performance

The most important thing to do when you find yourself in a hole is to stop digging, says Warren Buffet.

But how will you know you are in a hole unless you analyse your condition? You need to compare your funds with similar funds in the industry. A benchmark performance review is important. You can assess if your funds are doing well. It also helps you to know which of your funds are underperforming. You can then make changes in your portfolio accordingly.

Fund manager

A change of the fund manager does not imply an extreme change in the fund performance. But you must review your portfolio. Check the outlook of the new manager. Assess whether it is still in line with your objectives. Did you buy a scheme based on a particular fund manager’s style? Then you might wish to exit the scheme if a new fund manager takes their place. Be mindful of hasty decisions, though. Take your time in assessing the performance of the manager.

The bottom line: Learn from Rohan

Had Rohan used a GPS tracker, he would have reached his destination in less time. Avoid committing the same mistake while driving your financial vehicle. Keep a track of your investments. A timely review of your MF portfolio will keep you abreast of its performance. It will, thus, keep you aligned with your financial goals.

Mutual fund investments are subject to market risks, read all scheme related documents carefully.

 

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