Does your portfolio need a Health Check-Up?

We often diligently track our health but overlook the health of our Investment portfolios. Just as regular medical check-up helps detect and address health issues, portfolios check-up ensures your investments align with your financial goals and risk appetite.

But how do you know when and how to review your portfolio? Also, what should you focus on during these check-ups? Let’s Explore.

How often should you review your portfolio?

Don’t Let Short Term Volatility Distract You

Mutual funds are designed for long-term wealth creation. Reacting to short term market movements can disrupt your investment journey.

An Illustration:

Imagine you Invested Rs 1,00,000 in NIFTY 50 TRI in January 2019

Despite volatility, a long-term approach yielded an 15.74%* CAGR.

*Actual returns of NIFTY 50 TRI From 31/03/2019 to 29/11/2024. CAGR – Compounded Annual Growth Rate. Past Performance may or may not be sustained in future and is not a guarantee of any future returns.

The takeaway?

Don’t react emotionally to temporary declines.

What to check during a portfolio review?

Here’s a systematic framework for reviewing your portfolio

1. Is your Actual Asset Allocation in Line with your Intended Asset Allocation?

• Review your equity and debt allocation to ensure it aligns with your risk appetite and financials goals.
• Rebalance if market movements have caused significant shifts (e.g. consider increasing equity allocation after a rally market)

Your Risk Appetite is a function of

Suggest Equity - Debt Split

Source: Internal. Views expressed above are indicative and should not be construed as investment advice or as a substitute for financial planning. Due to the personal nature of investments, investors are advised to consult their financial advisors before investing in any scheme. The above is not a recommendation or investment advice, investors are advised to invest as per their investment objective and risk appetite or consult their financial advisors before investing in any scheme.

2. Is Fund Performance a Reason to Replace a Fund?

• Compare your mutual funds returns over a 5-Year period with the fund’s benchmark and peers.
• We need to note that the performance of various mutual funds within categories tend to be cyclical in nature. In many instances, underperforming funds over a short to medium term tenure have shown recovery over the next one or two years.
• A deeper investigation into underperformance need to be done to check if the trend is by design. For instance, during a market cycle when Large-caps underperform Small and Mid-Caps, it is possible that Large Cap Funds would have underperformed Small and Mid-Cap Funds too. Similarly divergence in sectoral performance or investment styles can also cause variations in fund returns. It would be better to talk to an investment expert to better understand the attribution of a fund’s performance.
• In many instances, you may wish to retain an underperforming fund. However, you may wish to replace funds that consistently underperform their benchmark. Such decisions are better taken under the guidance of an expert.

3. Is Your Overall Portfolio Adequately Diversified?

• Ensure your portfolio includes a balanced mix of equity funds (Large-cap, Mid- Cap, Small-Cap), debt funds and hybrid funds.
• Avoid overexposure to any single sector, fund category or market cap.

4. Are Your Investments Aligned with your Financial goals?

• Assess if your current funds are helping you meet your goals, such as saving for retirement or a child’s education.
• Adjust allocations or add new funds if your goals have changed.

A portfolio review is not about chasing trends but ensuring stability and growth. Reviewing your portfolio too often can be counterproductive as it can lead to take unwarranted actions. Schedule a bi-annual or annual reviews, focus on long-term goals, and don’t be swayed by market noise.

Keep your portfolio on track – Start your portfolio check-up now!

Readers before acting on any information herein should make his/her/their own investigation and seek appropriate professional advice.

MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.