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How frequently should I review my mutual fund portfolio?
Dhirendra Kumar sheds light on parameters to consider while reviewing your portfolio
Oct 16, 2019
How frequently should an investor review his mutual fund portfolio?
There is a difference between how often one should look at your portfolio and how often one should review it. While simply looking at your portfolio out of curiosity is not a problem, actively reviewing it on wrong parameters definitely is.
You may review your portfolio as many times as you like, but the important thing is the parameters on which you will examine your portfolio. Many times investors end up being disappointed by negative returns on their portfolio. But that might be a time when all equity funds are going down. So just feeling sad about the negative returns won't help. Thus, objective portfolio review is the key.
The most important thing to look at is if there is a change in the variables/reasons due to which you first selected the funds. Investors select a fund primarily on the basis of variables like performance with respect to peers and its benchmark, how reasonable it was in terms of expenses, and good performance over a full market cycle. If there is no change in these variables then one shouldn't change the fund just because of negative returns.
However, one may also select a fund giving extraordinarily positive returns, but it may not have the other important variables in place and might as well be assuming greater risk. So be objective with your portfolio reviews and do not fall prey to short-term performances of other funds.
In my opinion, the biggest reason to review one's portfolio is when your goals change. Take for example - you were 10 to 15 years away from your retirement goal, but now you are two years away from your retirement. In such a case, one definitely needs to adjust his/her portfolio with the change in circumstances.
Another point to keep in mind while reviewing your portfolio is to effectively rebalance your portfolio. Assuming your original asset allocation was 50:50, but owing to a big decline in the market the equity portion fell to 35 per cent. This will require rebalancing your portfolio. One should lay down such specific rules as these kind of reviews are helpful.
To summarize, having an objective review framework is the key. One can also consider doing annual reviews as these can turn out to be very tax efficient.