Have you started your journey as a mutual fund investor? Do you seek an attractive return from the mutual fund portfolio? You may consider monitoring your portfolio to achieve your financial goals. You must select the right mutual fund portfolio based on your investment goals and risk tolerance. Why should you check your mutual fund portfolio?
Mutual fund houses may disclose the portfolios of all their mutual fund schemes through factsheets. You may consider taking a close look at the portfolio to gauge the performance over some time. You get an idea of how the mutual fund manager takes care of your mutual fund portfolio.
Check the churn of your mutual fund portfolio
The mutual fund manager and the research team picks the right stocks after a thorough analysis of the stock market. However, if the fund manager makes regular entries and exits of considerable stock exposure in your equity schemes, it may show a lack of clarity on the investment objectives.
It would help if you studied the turnover ratio of your mutual fund portfolio. It reveals the buying and selling activities or the churn in your mutual fund scheme. If your fund manager consistently churns the mutual fund portfolio, your returns reduce over a more extended period. For example, a turnover ratio of 100% shows the fund manager churning the portfolio entirely over some time. You incur a higher transaction cost lowering your return over the long-run.
However, it would help if you also looked at other factors, such as the investment style of the fund manager. The fund manager may aggressively churn the portfolio to achieve a higher return over the long-term. Stick with the mutual fund only if you are comfortable with the investment objectives.
Check the diversification of your mutual fund portfolio
An aggressive investor may consider putting money in a focused fund. It has up to a maximum of 30 stocks in the portfolio and may offer a higher return if the fund manager picks the right shares. However, you could lose money during a stock market correction as the portfolio concentrates the investment in only some sectors.
A conservative investor may consider diversifying or spreading investment across different sectors. It protects your portfolio from the extreme volatility of the stock market.
If you are new to the stock market, you could put money into an equity-diversified mutual fund. The fund invests the assets in stocks of different sectors reducing the overall risk in the portfolio, without compromising on the return. You must check the holdings of the mutual fund and determine if your investment reaches across different sectors.
Why must you check your portfolio?
You may consider checking the mutual fund portfolio to identify the underperforming funds. Check your portfolio and determine the mutual funds that are steadily behind the benchmark for three or four quarters. If your mutual fund consistently underperforms the benchmark, you may have to make a replacement.
You must review the portfolio and identify the reason for the underperformance of the mutual fund. For example, you may have put your money in a value fund that picks undervalued stocks. It could underperform the benchmark such as the Nifty 50.
However, the peers of the value fund have also fallen behind the benchmark. Reviewing your portfolio may show you the flaws in the strategy or the theme. You may have to exit the strategy as it doesn’t match your investment goals.
You must check your portfolio for overlaps. You may have put your money in different mutual funds with the same stock holdings. It increases the risk in the portfolio as similar holdings nullify the benefits of diversification. You could review the portfolio and check if the fund house has merged the mutual fund schemes. You may continue with the investment only if the investment objectives match your financial goals and risk tolerance.
You may consider checking the portfolio at least once in six months and rebalance if necessary. If the mutual fund house changes the fund manager, you could take a look at the track record of the new manager. You may continue with the investment only if you are comfortable with the investment style. In a nutshell, you must review the mutual fund portfolio to check if the investments meet your expectations.
For any clarifications/feedback on the topic, please contact the writer at