How to revamp your portfolio this Diwali!

What are the most common signs that an investment is underperforming and should be removed from a portfolio?

It's fairly straightforward when it comes to mutual funds. A fund that has not beaten its benchmark over the last three years or a fund managed by a highly reputed manager that hasn't performed well over five years should be reconsidered. I give up on such funds as there are other options available. Also, it's essential to ensure that you're investing in a diversified, low-cost vehicle. Therefore, my first step when I evaluate a fund is to determine whether it has consistently beaten its benchmark over three to five years.

Looking at your stock portfolio is more complicated. You have to assess whether it's a great company, if it's growing well, if it's too expensive, or if it just has momentum. Some great companies don't move for years, while some poor companies do. So, you need to make informed decisions here. Value Research could be very helpful with this.

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How to decide what to keep in your portfolio?

Most of the time, investors get excited by the recent uptick - how their investments have done over the past few months or a handful of years. But I would say take a more holistic view of your portfolio. Ensure you have a meaningful position in a fund so that, if it performs well, you'll make significant gains.

I follow two simple strategies for my mutual fund portfolio:

1. Hold a meaningful exposure, where each position is around 7.5-10 per cent of the portfolio because it's diversified. Ideally, invest in funds you don't need to change often. Look for a diversified vehicle - maybe a value fund, large and mid-cap fund, flexi-cap fund, or multi-cap fund - and ensure it has beaten the benchmark over three to five years. Value Research Online gives you these numbers.

2. For stocks, ensure each holds a meaningful position, ideally 2 per cent to 5 per cent of your portfolio. After all, if a stock doubles but only represents a small fraction of your portfolio, the impact on your overall wealth is minimal.

Value Research makes monitoring, tracking, and analysing your portfolio easy. You can import your investments from the depository and fund companies via your PAN number and OTP verification. In just a few minutes, your portfolio is live on Value Research Online, providing insights on fund performance, benchmark comparisons, and fund ratings. I recommend dropping any fund positions that represent less than 5 per cent of your portfolio.

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When it comes to stocks, you'll see grading based on quality, growth, valuation, and momentum. Based on these, you can quickly decide what to sell and what to hold. Ensure each mutual fund holds at least 10 per cent of your portfolio, while each stock should be between 3-5 per cent.

Dhirendra Kumar's investment pick this Diwali

My advice is to clean up your portfolio. By doing this, you'll have funds available to reinvest and can look forward to a more prosperous Diwali next year. Remember, long-term investments shouldn't be planned with a "Diwali-to-Diwali" mindset. If you want to invest during Diwali, choose a stock you'd be happy to buy consistently over the next decade. Start by setting up an annual SIP or even investing your bonuses.

In mutual funds, frame your rules, clean your portfolio, and resist the urge to add something new just because it seems appealing or is trending. FOMO is the greatest weakness of an investor. And a great portfolio doesn't need constant additions; a diversified, long-term portfolio serves you well.

"As the market is crashing, is it the right time to redeem all mutual funds?" - Pramod

If you need your money in the next six months or even two years, then yes, plan accordingly. However, if it's for the long term and you don't need this money soon, remain invested. In fact, if you have extra funds, this could be a good opportunity to invest more. Over time, markets rise, and dips are temporary. If you constantly pull out during downturns, you miss out on the potential for growth.

To put it simply, if you need the money within six months, consider withdrawing. If it's within one year, withdraw half now. If it's within two years, take out 10 per cent to 25 per cent. Plan your withdrawals methodically, just as you do with investments. This approach ensures you aren't forced to sell when the market isn't in your favour.

Also read: What's the magic number?

This article was originally published on November 01, 2024.