6 Reasons to Periodically Review Your Mutual Fund Portfolio
Mutual funds are a popular investment option. You can achieve several financial milestones by investing in mutual funds in a structured way. However, mutual fund investments require patience and regular monitoring. This is why it is important to review your mutual fund portfolio periodically. Read on to know more about why this is crucial.
1. Your Financial Milestones May Have Changed
When you first invested in a mutual fund, your financial responsibilities may have been different. Perhaps you were younger with fewer obligations. Over time, your priorities likely shifted. You may now need to save for family or other future goals. As your financial milestones change, your investment strategy should evolve to align with these new goals.
Periodically reviewing your mutual fund (MF) portfolio ensures your investments remain on track to meet your current objectives, such as buying a house, funding education, or planning for retirement. Adjusting your mutual fund portfolio based on life changes ensures your financial goals are effectively met.
2. Opportunity To Detect Better Funds
New investment options often emerge, and they may outperform your existing funds. Reviewing your mutual fund portfolio regularly allows you to spot mutual fund top performers that may not have been available when you initially invested. This gives you the opportunity to replace underperforming funds and include newer, more suitable options.
Identifying better mutual funds returns can lead to better financial outcomes over time, ensuring your portfolio stays aligned with your goals and changing market conditions.
3. Change in the policies of the government
Financial markets are significantly impacted by the government policies. This is why stock prices often fluctuate after a budget announcement. Since mutual funds are directly affected by these stock price changes, their performance is influenced when government policies shift.
Similarly, you may notice changes in a mutual fund’s performance and yield if there are adjustments in the tax structure. Additionally, when banks, particularly the RBI, review the interest rates, financial markets are affected. These policy changes, especially those related to taxes, can impact your mutual fund portfolio, which is why it is crucial to monitor it regularly.
4. Evaluate Risk Tolerance Level and Rebalance Accordingly
An essential part of managing your mutual fund portfolio is periodically assessing your risk tolerance. Over time, as you approach major life events like retirement, your ability or willingness to take on investment risk may change. Younger investors might prefer a portfolio that leans heavily on equities for higher growth potential, while older investors might shift towards more conservative, income-generating assets like bonds.
Regular portfolio reviews give you the opportunity to adjust your asset allocation to match your changing risk appetite, ensuring your investments remain aligned with both your financial goals and comfort level with market volatility.
5. To diversify your portfolio
Diversification is key to managing risk and improving potential returns. Sticking with a single mutual fund for too long may prevent you from maximising your investment portfolio. Regularly reviewing your MF portfolio, ideally annually, enables you to reassess your investment strategy.
This allows you to diversify across different asset classes, such as equities, real estate, and bonds, minimising risk and enhancing mutual fund returns. Always remember, a well-diversified portfolio is essential for long-term financial stability.
6. Keep Pace with Market Changes
Financial markets are dynamic, influenced by global events, economic indicators, political developments, technological advancements, and sector performance. A mutual fund portfolio that performed well last year may not deliver the same results today due to market changes and evolving economic conditions.
Regularly reviewing your portfolio helps you stay updated with these shifts, enabling you to adjust your investments to align with current market conditions. By identifying trends and adapting your strategy, you can enhance your portfolio’s performance and minimise potential losses.
Consistent monitoring ensures your investments remain balanced and responsive, helping you make informed decisions for better long-term returns and growth.
How Often Should You Review Your Portfolio?
It is recommended to review your mutual fund portfolio at least once a year to stay informed. However, if there are significant changes in the market, economy, government policies, or your personal financial situation, a more frequent review may be necessary. Regular reviews ensure that your portfolio continues to meet your financial goals, taking into account market fluctuations and changes in personal circumstances. Additionally, consistent monitoring helps optimise your mutual fund returns, identify top-performing funds, and maintain a healthy, well-diversified portfolio that aligns with your evolving financial objectives.
What Are the Common Mistakes to Avoid When Reviewing Portfolio?
Avoid making hasty decisions based on short-term market fluctuations. Many investors tend to exit funds due to temporary downturns, missing out on long-term growth opportunities. Another common mistake is not diversifying enough, which can limit potential returns and expose you to unnecessary risk.
Relying too heavily on a single type of investment can increase overall risk and reduce portfolio stability. Failing to account for changes in personal financial goals, such as retirement or education planning, is also a pitfall.
Ensure that your portfolio is regularly updated and aligned with both short-term and long-term financial objectives. Lastly, avoid overlooking fund performance reviews. Doing so could lead you to hold onto underperforming assets, which may drag down overall
How Should You Undertake Portfolio Review?
Begin by evaluating your financial goals – both current and future. Next, evaluate the performance of each fund in your portfolio. Compare your fund’s performance against mutual fund top performers in the same category to gauge its competitiveness.
If a fund is consistently underperforming, consider replacing it with better options that aligns with your goals. Assess whether your portfolio is diversified across asset classes like equity, debt, international funds, and alternative investments to balance risk and return. Be sure to account for any changes in government policies, interest rates, or tax norm that may affect your investments.
Be sure to consult a financial expert for insights into your review process and fund selection to ensure your strategy remains optimal. Periodically rebalancing your mutual fund portfolio is essential to maintaining a healthy financial plan.
End note
Periodic reviews of your mutual fund portfolio are essential for maintaining a balanced and goal-oriented investment strategy. Market conditions, life events, and government policies can all impact your MF portfolio, making regular reviews critical for optimising returns.
By remaining informed, being patient, and consulting with a financial advisor, you can ensure your investments grow in line with your financial objectives. With these steps, you can meet your milestones and maximise your mutual fund returns effectively over the long run.
