Why Do You Need to Review Your Mutual Fund Portfolio?

Have you invested in a mutual fund recently? Then, you must consider reviewing your mutual fund portfolio often. This may help to keep track of your investments while allowing you to meet your financial goals. Reviewing this portfolio is similar to using a GPS tracker. Similar to a car that needs regular maintenance, your portfolio also needs your attention.

Likely, you have already created a robust investment plan with a professional advisor’s help. So, reviewing your portfolio will ensure that everything is going as per that plan. This way, you know if it needs any corrective action. Below in this post, you can explore more reasons to review your mutual funds to profit from your investment truly.

Why Should an Investor do a Periodic Portfolio Review?

Here are the five major reasons why it is essential to review your mutual fund portfolio periodically:

To Accommodate Changes in Personal Circumstances

An individual’s financial goals start evolving as they move ahead in life. During this time, lifestyle changes, marital status, and financial dependencies may cause them to add, change or drop certain financial goals. For instance, when initiating their financial planning at 25 years of age, they might not have considered their future objectives. Such goals could include property investments, marriage, a child’s education, post-retirement life, etc.

When conducting a periodic portfolio, they can easily assess if their investments are in line with their objectives. Such reviews can help them evaluate the current portfolio state. Moreover, they can also make necessary changes to the portfolio to ensure it aligns with the future goals. Restructuring the mutual fund investment portfolio can help to suit better one’s changing needs or risk tolerance. Lastly, it can optimize the fund allocation across different asset classes.

To Take Advantage of Market Movements

By regularly examining your portfolio, you may take advantage of any prospective market movements. For instance, you might intentionally adjust your portfolio to give equities funds greater weight if you expect a positive time in the equity market. On the other hand, you can decide to put more of your money into debt funds if you foresee a gloomy market trend. By doing this, you are practically doing market timing, although in a controlled and logical way. This technique enables you to maintain a well-thought-out investing plan while taking advantage of opportunities as they present themselves.

To Maintain an Optimal Asset Allocation Mix

As you’re aware, asset allocation refers to how an individual divides their total investment capital among various asset classes. Suppose Mr A initially allocated Rs. 10 lakhs equally between equity and a debt fund, resulting in a 50:50 allocation. After one year, due to fluctuations, the composition of his funds has shifted to 65% equity and 35% debt. This means that his original asset allocation is no longer in place. So, his portfolio now carries a higher level of risk than he had initially planned for.

To restore his portfolio to its original 50:50 allocation and manage risk as per his original intentions, he must rebalance his investments. This involves shifting some of the funds from equity to debt. By doing so, he can bring his portfolio back to the desired 50% equity and 50% debt allocation. This rebalancing act helps maintain the intended risk level and aligns his investments with his original financial strategy.

To Replace Underperforming Schemes

You may have mutual fund schemes in your investing portfolio that have consistently underperformed. So, you may identify these failing investments during a portfolio review because they have either consistently performed poorly or have put your portfolio at an unacceptably high risk. Also, you may then decide with knowledge which mutual fund schemes to replace these underperformers with in order to improve your portfolio’s overall return chances.

By using this tactical strategy, you may achieve your financial goals and pursue risk-adjusted returns. It’s vital to remember that evaluating a scheme’s performance merely in the short term or pursuing the most recent top-performing funds is not recommended. Experience has demonstrated that many funds with remarkable performance in one year may not continue to perform at that level in succeeding years.

For Tax Purposes

In fact, a key element of investment planning is tax planning. You may significantly reduce your overall tax obligation by periodically examining your portfolio and making calculated modifications. For instance, you can save taxes by tailoring your investing plan to the tax treatment of particular securities. Additionally, many individual investors may be unaware of the benefits of tax-loss harvesting, which may be used to lower taxable profits.

How Often to Review Your Portfolio?

Your specific situation should determine how often you review the portfolio. You could find it essential to perform evaluations on a monthly, quarterly, or annual basis, depending on your particular circumstances.

You could choose a yearly review if you have a long investing horizon. Contrarily, more regular check-ins are advisable if your investment horizon is shorter. Frequent reviewing is also essential if you have a lower risk tolerance to ensure your investments stay in line with your financial goals. Wealth growth requires a proactive attitude to investment monitoring, which frequently entails more regular portfolio reviews.

Conclusion

To sum up, it is important not to undervalue portfolio evaluations as a key component of effective investment. One of the fundamental ideas for successful investing is to evaluate your portfolio on a regular basis. These reviews provide you with a great chance to assess the performance of your assets and make sure you are moving in the right direction in terms of reaching your financial goals.