How to Review your Mutual Fund Portfolio?

by Alina Khan

Published On Nov. 8, 2023

In this article

Investing in mutual funds offers investors a convenient and diversified way to grow their wealth. However, it's not enough to merely invest; regular reviews of your mutual fund portfolio are essential to ensure that your investments remain aligned with your financial goals. In this guide, we will break down the steps and considerations for effectively reviewing your mutual fund portfolio, without the need for complex financial jargon.

The Importance of a Portfolio Review

Much like tending to a garden, mutual fund investments require regular attention. Regular portfolio reviews serve several crucial purposes:

  • Alignment with Goals: Financial goals change over time. Regular reviews ensure that your mutual fund investments stay in sync with your objectives, whether it's saving for a home, education, or retirement.

  • Risk Management: Market dynamics are unpredictable. Reviews help assess and manage the risk levels in your portfolio, ensuring they align with your risk tolerance.

  • Tax Efficiency: Efficient tax planning is vital. Reviews enable you to optimize tax implications, potentially reducing your tax liability.

  • Performance Evaluation: Understanding how your investments perform relative to benchmarks and peers empowers you to make informed decisions and reallocate assets for better returns.

Now, let's explore the systematic steps to review your mutual funds portfolio effectively.

Step 1: Clarify Your Objectives

Before delving into portfolio analysis, revisit your financial goals. Are you saving for a particular milestone, such as buying a home or funding your child's education? Clear objectives guide the evaluation of your mutual fund investments.

Understand and plot your financial goals and track them.

Step 2: Collect Portfolio Data

Gather all relevant data about your mutual fund portfolio. This includes investment statements, account statements, and any documents detailing your holdings, transactions, and performance.

Start your free portfolio review to make informed decisions based on your risk profile.

Step 3: Examine Asset Allocation

Asset allocation forms the foundation of your portfolio. It involves distributing investments among different asset classes, such as equities, debt, and gold, based on your risk tolerance and financial goals.

If you aim for wealth creation with a higher risk tolerance, consider a 12-20-80 asset allocation model. Allocate 12 months' worth of expenses to a Liquid Fund for emergencies, 20% to gold (which often has an inverse correlation with equities), and allocate the remaining 80% to diversified equity funds. Such a mix offers stability, growth, and protection.

Read our detailed article on The Crucial Role of Risk Profiling in Mutual Fund Investments . And get your risk profiling for free, to understand your risk tolerance and risk capacity levels.

Step 4: Evaluate Fund Performance

Assessing the performance of individual mutual funds is pivotal. Look at key performance indicators:

  • Returns: Compare fund returns with relevant benchmarks and peers over various timeframes.

  • Risk Metrics: Evaluate volatility, as measured by standard deviation.

  • Expense Ratio: Lower expenses can contribute to better returns.

  • Fund Manager Track Record: Consider the manager's experience and past performance.

Get a Free Portfolio Review for your mutual fund & equity investments.
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Step 5: Review Fund Holdings

Scrutinize the holdings within each mutual fund. Ensure that they align with the fund's objectives and your asset allocation strategy . Avoid excessive concentration in any particular stock or sector.

Step 6: Assess Portfolio Characteristics

Analyze your portfolio for concentration among different asset management companies (AMCs), category and sub-category-wise weightage, and exposure to sectors (and quality of papers in debt mutual funds). Ensure diversification across mutual funds , investment styles, market capitalizations, sectors, and debt quality.

To learn more about diversification, read our detailed article: Diversification in Mutual Funds: Building a Resilient Investment Portfolio

Step 7: Address Underperforming Schemes

The performance of your portfolio hinges on how the various schemes perform. Detect consistently underperforming schemes that may harm your portfolio's health. Consider switching from underperformers to better-performing mutual fund schemes.

Step 8: Consider Portfolio Rebalancing

Rebalance your portfolio if there's a significant deviation from your original asset allocation. For instance, if your portfolio has high equity exposure but your risk tolerance has reduced or you're nearing your financial goal, consider shifting to less risky investments like debt funds.

Regularly reviewing your mutual fund portfolio is crucial for prudent financial planning. By following these steps, you can ensure that your investments align with your financial goals, risk tolerance, and changing market conditions. Remember that a disciplined approach to portfolio review can be instrumental in achieving your long-term financial objectives and securing your financial future.

Get a Free Portfolio Review for your mutual fund & equity investments.
Review Now

To Sum Up

When reviewing your mutual funds portfolio, it's essential to avoid making decisions solely based on isolated numbers. Always compare a fund's returns to its benchmark and category average. Avoid excessive diversification , as it can make portfolio management and tracking challenging while potentially leading to overlapping holdings. Additionally, don't disregard your asset allocation strategy; stick to it, as it is designed to help you achieve your goals consistently.

Lastly, refrain from making investment decisions solely based on current market conditions. Don't shy away from funds that may not have performed well in the past year. For your long-term financial goals, stability and a history of strong performance should take precedence over short-term fluctuations.

Read these articles to understand all about mutual funds and how you can invest in mutual funds with Wright Research:

  1. What is SIP in Mutual Funds? An Experts Guide

  2. The Crucial Role of Risk Profiling in Mutual Fund Investments

  3. How many funds should you have in your Mutual Fund Portfolio?

  4. What is Standard Deviation in Mutual Fund and How Does it Help in Portfolio Management?

  5. Find Out What Portfolio Risk Is & How to Reduce It

  6. Smallcase vs Mutual Fund: Understand Difference and Similarities

  7. SIP Investment Guide: What is SIP, How to Start, Benefits, & Is It Worth It

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