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Tata Capital > Blog > Is your mutual fund portfolio still aligned with your goals? 5 Signs to look for

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Is your mutual fund portfolio still aligned with your goals? 5 Signs to look for

Is your mutual fund portfolio still aligned with your goals? 5 Signs to look for

Your mutual fund portfolio should be reviewed periodically to keep it aligned with your changing financial goals and risk appetite. The review must pay attention to asset allocation drift, portfolio overlap and incessant underperformance. These reviews and performance analysis, along with timely rebalancing, will keep the portfolio goal oriented.

Regular mutual fund portfolio monitoring is essential to keep it aligned with your financial goals, risk appetite and market conditions. Selecting the best mutual funds in India is only half the battle. Periodic mutual fund portfolio analysis ensures that your portfolio remains the best performer in the long run.

If you have not reviewed your mutual fund portfolio in some time, look for the signs. Here are five signs that tell you it is high time to do so.

Has your asset allocation changed since you started?

Mutual funds are managed by fund managers, who regularly churn the portfolio to keep it optimum.

You can check changes to your mutual fund portfolio by checking,

For instance, you may have a conservative risk appetite and want a 50% exposure to large-cap stocks. But the funds may have shifted toward small- and mid-cap stocks over time. This calls for rebalancing of your mutual fund portfolio.

Do you have similar funds within the portfolio?

Let us assume that you have a thematic fund specializing in IT, a large-cap fund as well as an index fund. On a detailed look, you notice that all three funds have invested significantly in TCS, a large-cap IT stock with considerable weightage in the leading Indian indices.

The signs to look for include,

  • Multiple funds in your portfolio holding the same stocks,
  • Multiple funds with exposure to the same sector, say real estate or banking,
  • You have multiple funds managed by the same fund manager or with a similar investment style.

Is your portfolio consistently underperforming?

A short-term underperformance amidst a war raging in the Persian Gulf is somewhat expected. But if your mutual fund portfolio is performing below your expectations for a prolonged duration, it certainly needs a review.

Here’s how you can find out that your portfolio is underperforming,

  • Compare your fund returns with the benchmark index,
  • Compare it with competing funds in the same category,
  • Focus on the 3 and 5-year returns instead of the 1-year return,
  • Is the fund underperforming across different market cycles,
  • Are high expense ratios eating away your return?

Have your financial goals changed now?

The financial goals that shaped your mutual fund portfolio do not remain the same. With age, our financial priorities are bound to change. Change is the only constant, and here’s how financial goals may change,

  • Your financial goal may change from a home purchase to retirement planning,
  • Your investment horizon will shorten with age,
  • Your risk appetite will reduce as you grow older,
  • Your income may have increased or decreased, thus changing your present investment capacity.

For example, if you have recently retired, you need to consider the reduced income, investment horizon and risk appetite. You may shift towards a more debt-heavy portfolio and systematically reduce your equity exposure. As your financial goals evolve, so should your mutual fund portfolio.

Are you still familiar with your portfolio?

This simple question can nudge you in the right direction regarding a mutual fund portfolio review. If you struggle to recall the basic facts about your portfolio, it is high time you review it. Test these basic facts on yourself,

  • What is the current value of your mutual fund portfolio?
  • Which fund have you invested the highest amount in?
  • What is the debt-to-equity proportion in your portfolio?
  • How much return have you earned in the last one, three and five years?
  • Which of your funds have the highest and lowest expense ratios?

If you don’t know the answers to questions like these, go ahead with a detailed mutual fund portfolio review.

How to carry out a mutual fund portfolio review?

A review should consist of a stocktaking of the existing portfolio, a reassessment of the portfolio structure, and alignment with your present financial goals. You can start with,

  • Downloading and reviewing the Consolidated Account Statement (CAS),
  • Log in to your investment platform and review your holdings,
  • Review category allocation to identify any concentration risks and assess whether small or fragmented allocations are meaningful enough to contribute to portfolio outcomes.Review the mutual fund fact sheet and disclosures,
  • Check your individual fund performance and contributions made,
  • Build a diversified mutual fund portfolio.

Summing it up

Seasoned investors don’t just curate the best mutual fund portfolio; they also monitor the mutual fund portfolio performance regularly. By keeping some time aside every quarter or year for review, you can keep your portfolio aligned to your financial goals and diversified to meet your long-term expectations.

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FAQs

Can I check my mutual fund portfolio across different fund houses?

Yes, you will find the complete information by downloading the CAS, using your registered email ID or PAN. It provides details of mutual fund holdings across different asset management companies.

How to check my mutual fund portfolio effectively?

You can track your mutual fund portfolio by checking fund metrics such as annualized returns, Extended Internal Rate of Return (XIRR) with benchmark return, portfolio value, asset allocation, your SIP contribution, etc. You can compare the performance on your investment platform, through the registrar website or portfolio and investment apps.

How many mutual funds should I have in my portfolio?

There is no fixed number, but 7 to 8 funds should be manageable. You can invest with a goal-based approach, with funds for retirement, children's education, home purchase, etc.

How to manage a mutual fund portfolio in a volatile market?

Investors should focus on long-term financial goals rather than short-term market volatility. Impulsive decisions during volatile market situations should be avoided, and long-term SIP discipline should prevail. Asset Allocation is the key.

How to rebalance a mutual fund portfolio?

If your portfolio is underperforming or doesn’t hold your desired asset allocation, you should consider portfolio rebalancing. This is done by redeeming funds that have been underperforming for a long time or have overweight asset classes. Simultaneously, new investments in underweight or promising asset classes can be made.
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