Here’s When You Should Rejig Your Mutual Fund Portfolio

The Indian markets have seen high volatility over the last two years. The major Indian indices have not fared better as their extent of appreciation has not touched double-digit mark. Due to this, the MF investors did not have the expected success in their investments and are considering making changes to their portfolio. 

The Indian equity markets are affected by various negative factors such as the economic slowdown, reduced consumption, reduced corporate earnings, trade war between China and the United States of America, and rupee experiencing high volatility. These factors have combined to make the nights sleepless for investors.

The government is trying its best to tackle the issues and bring back the lost glory into the Indian markets. The government has announced growth and economic boosters in two stages. The markets have so far acted positively. The BSE Sensex is now well past the 40,000 level while the NSE Nifty is hovering around the level of 12,000.

The government has taken a bold step to recapitalise the public sector banks by merging several banks. This move is also aimed at reducing non-performing assets. The Finance Minister withdrew the increased surcharge on the super-rich and FPIs. Also, the government rolled out a cut in the corporate tax rate, which has delighted the Indian companies. 

Amidst all these positive developments, the Indian GDP has plummetted to record levels. The State Bank of India has lowered the Indian GDP growth forecast for the FY20 from 6.1% to 5%. This has set cats among pigeons as far as the investors are concerned. 

Also Read: Equity Mutual Fund Inflows Plummets to Five-Month Low in October

You, as a mutual fund investor, might be thinking of realigning your portfolio to optimise returns. However, it is advisable to make changes to your portfolio only in the case of the following scenarios:

1) The objective of the scheme is not in line with your’s:

With the view of protecting the investors’ interest, the Securities and Exchange Board of India (SEBI) in 2017 mandated fund houses to clearly define the fund’s objectives, investment strategy, and risk involved. If you feel your current scheme is not in-line with your goals, then you can consider shifting to another fund. You must ensure that your objectives and the fund’s objectives are in sync, if not, then there is no point in making changes to your portfolio. 

2) Restrictions on redemption:

If your current investment scheme has restrictions on redemption, and you find another plan having the same features, but with relaxed redemption norms, then you may switch to that fund. You might not need your investment now, but there would be a day when you would need it, and you shouldn’t be in a spot of bother when redeeming your units. Hence, it is always good to invest in schemes having relaxed redemption norms. 

3) A change in investment objective:

Your investment objectives may change at times, and it is wise to make changes to your investment portfolio to get the best option offering optimal returns based on risk profile. If your current investment is made in a risky mutual fund scheme with a view of buying a car in short-time and if there is a change and you feel like using the same to plan your retirement, then it is good to change your portfolio into a much safer option such as debt funds. 

4) Saving taxes:

Over time, if you feel like making maximum use of the provisions of the Section 80C of the Income Tax Act, 1961, then you can switch your mutual fund investments to the equity-linked savings scheme (ELSS). Investors can save up to Rs 46,800 a year in taxes by investing in ELSS mutual funds.

Now that you have understood the ideal scenarios in which you could make changes to your mutual fund portfolio, you need to be wise when doing so.

For any clarifications/feedback on the topic, please contact the writer at vineeth.nc@cleartax.in