Reviewing the Mutual Fund Portfolio

Published On: 30-Oct-2019

Just as it is important to start investing early, it is paramount to review your portfolio periodically. Regular assessment allows you to review the performance of the various funds and accomplish your financial goals. Here are four crucial parameters against which you may compare your mutual fund portfolio

How to review Mutual Fund Portfolio

1. Performance against the benchmark Index

Comparing the performance of mutual funds against the benchmark index is straightforward and may be made directly by referring to the fund fact sheet. This is because SEBI has mandated the fund houses to disclose the scheme performance across different investing periods along with the comparative returns generated through the benchmark index. Accordingly, the comparative performance of the scheme as against the benchmark index may be seen directly through the disclosures made by the fund houses. 

The relative performance of the scheme against the benchmark index is denoted as alpha, and the investors must always strive to invest in funds with positive alpha. Further, the investors must compare the performance of the fund for extended time periods, as the short-term performance may not give a clear picture of the performance. 

2. Performance against the Peer Funds

The scheme performance must also be compared against the performance of peer funds in the same category. While the performance of benchmark indices may have got skewed due to exceptional movements in a group of stocks, performance against the peer group may be a better indicator of the fund performance. The superior performance of a mutual fund scheme as against the average of the category and other peer group funds may be reflective of the better fund management by the mutual fund. The investors may consider visiting websites such as ValueResearchOnline.com, EasyMF.com, etc. to have an overall view of performance by different schemes available for investment within a single category.  

3. Review of the Asset Allocation

It is advisable that the investor aligns asset allocation for the mutual fund portfolio with their risk profile. While they may have made the initial investment as per the optimal asset allocation strategy, the portfolio’s asset allocation may have changed later due to different returns generated by various schemes. Further, with time, the risk profile of an individual also gets more conservative, which calls to steadily shift the investments to relatively safer investments. As such, one must review the MF portfolio for the changes in asset allocation and risk profile and adjust and rebalance it to bring it to the desired levels. 

4. Performance against the Expected Returns

While you may have planned for an ideal mutual fund portfolio to achieve your financial goals on time, the subsequent performance may not have been as per the expected returns. For example, you may have planned your SIP investments with 12% expected returns, while the actual returns over the first three years have been around 10%. One must consider compensating this 2% deficit in returns by making additional investments into mutual funds so that the achievement of the ultimate financial goal is not impacted or postponed. Due to the benefit of compounding, any gaps in the investment corpus due to lower returns may have an exponential impact on the overall financial plans and hence, plugging such gaps on time becomes imperative for a smooth investing journey. 

Reviewing your portfolio on a periodical basis helps you drive through your investing journey seamlessly to achieve your financial goals in the desired time frame. 

Disclaimers: The information set out above is included for general information purposes only and is not exhaustive and does not constitute legal or tax advice. In view of the individual nature of the tax consequences, each investor is advised to consult his or her or their own tax consultant with respect to specific tax implications arising out of their participation in the Scheme. Income Tax benefits to the mutual fund & to the unit holder is in accordance with the prevailing tax laws/finance bill 2017. Any action taken by you on the basis of the information contained herein is not intended as on offer or solicitation for the purchase and sales of any schemes of UTI mutual Fund. Please read the full details provided in SID and SIA carefully before taking any decision.

UTI AMC Ltd is not an investment adviser, and is not purporting to provide you with investment, legal or tax advice. UTI AMC Ltd or UTI Mutual Fund (acting through UTI Trustee Company Pvt. Ltd) accepts no liability and will not be liable for any loss or damage arising directly or indirectly (including special, incidental or consequential loss or damage) from your use of this document, howsoever arising, and including any loss, damage or expense arising from, but not limited to, any defect, error, imperfection, fault, mistake or inaccuracy with this document, its contents or associated services, or due to any unavailability of the document or any part thereof or any contents or associated services.