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Annual mutual fund portfolio review: what to do and what not to do

Even though the market is at an all time high, most equity mutual fund schemes haven’t had a great year.

ET Online|
Updated: Dec 12, 2019, 12.23 PM IST
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fixed income
The end of the year is a great time to take a close look at your mutual fund portfolio. In fact, many investors have made it a ritual of sorts. However, many of them tend to focus on aspects, probably because of lack of clarity about the process. Here are a few pointers that you may find useful.

Take a closer look
How has your scheme performed in 2019? Not very well? Right? Okay, don’t stop there. You must know that even though the market is at an all time high, most equity mutual fund schemes haven’t had a great year. Most of them have posed modest returns in the calendar year. You must have this much knowledge about the asset class you have invested. Otherwise, you should hire a professional to manage your money.

Always compare with benchmark
Looking at your scheme in isolation would not tell you anything. Unless you compare its performance with its benchmark, you would know about how your scheme has fared in the last year. Next, compare with the category average return. This will tell you how the scheme has fared vis-à-vis its category. If it has offered higher returns than the average, you are in great company. If the returns are lower than category average, your scheme is in the bottom half on the chart.

No need to get anxious
Okay, your scheme is in the bottom half or last quartile. Should you worry? Not really. Try to find out the reason behind the lacklustre performance. You can read fund reviews and interviews of the fund manager to get better idea. If it’s an equity scheme, you shouldn’t worry much about a short period of underperformance. However, you should be concerned about one-year performance of a debt scheme.

When to sell the scheme
If your scheme is underperforming for more than a year or two, you should take a close look at the scheme. Scan through all the reviews and interviews to find out the real reason behind the performance. If you are not satisfied with the explanation and logic offered by the fund house or manager, you may consider selling the scheme. Do not sit on the money for a long period. Invest the money immediately in a better performing scheme in the same category or a category as per your profile.

No apple to orange comparison
Many investors, especially the new ones, tend to compare the performance of their scheme with schemes in another category. This is a meaningless exercise. Different categories behave differently in various phases in the market. Such comparisons would force you to take wrong decisions.

Do not take any hasty decision
Never take any buy or sell decisions based on returns, especially in the short period. Always remember that your mutual fund investments must be based your investment objective, horizons, and risk profile. Never ignore these factors, and focus solely on the returns offered by schemes. You might end up with choices that might not be in line with your objectives.

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