Why it is important to review your mutual fund portfolio with a MFD

Introduction

The effectiveness of your financial planning depends on how well your mutual fund portfolio is designed. Much like the needs and priorities of your life evolve as time goes on, so do the dynamics of the market, economics, and even your personal financial goals.

By conducting a yearly mutual fund portfolio review, you can ensure that your investments are aligned well with your financial aspirations.

The financial landscape is constantly evolving. As such, your investments need to account for global economic trends, interest rate fluctuations, shifts in market conditions, and inflation.

These factors significantly influence your mutual funds and can impact their performance over time. This makes it essential to have a mutual fund review by experts. It keeps your portfolio adaptable to these changes, helping you avoid potential investment pitfalls.

You can say that this is a proactive step to ensure your investments align with your goals and your portfolio is responsive to the market dynamics.

5 Signs You Need a Portfolio Review

Why review mutual fund portfolios? The benefits of reviewing mutual funds with your mutual fund distributor (MFD) begin with optimized portfolio performance and risk mitigation. To understand if you need portfolio rebalancing, look for the following signs:

Underperformance

Mutual funds are benchmarked against market indices. If the funds in your portfolio are consistently delivering returns lower than their benchmarks, it is time to get a mutual fund portfolio review.

For example, investing in a fund that trails behind the NIFTY 50 despite similar market conditions may highlight a bad selection of stocks; rebalancing is necessary.

Goal Changes

Just like life changes, your financial goals also evolve over time. When you reach new milestones in life, they impact your financial goals as well. For example, marriage, the birth of a child, a career shift, etc., may require a portfolio replanning to account for your new financial situation.

Market Shifts

Macroeconomic events like inflation or regulatory changes impact your asset classes differently. For example, if interest rates rise, your debt funds may see a decline in their NAV.

This is where a portfolio review by your MFD is essential. A professional can review your portfolio and suggest adjustments to ensure maximum optimization.

Excessive Risk

It is time to reassess your investment portfolio when your investments enter a risk zone beyond your tolerance. For example, a fund portfolio focusing mainly on the mid-cap sector will be prone to frequent fluctuation. This may require a change in strategy for a more balanced outcome.

Changes in Fund Management

Regular reviews with your MFD help you offset any doubts about fund performance when a renowned fund manager retires, quits, or moves on to a different fund house.

How MFDs Add Value

Mutual Fund Distributors are crucial in optimizing your portfolio and investment journey. Here is how their suggestions and expertise can add value to your financial planning:

Tax Optimization

Taxes greatly affect the returns you can enjoy from your investments. MFDs help you capitalize on your investments by adjusting for tax through tailored strategies.

For example, they may recommend investing in tax-saving funds like ELSS (Equity-Linked Savings Schemes) to minimize tax liability.

Risk Adjustment

Fluctuations in the market or changes in your circumstances can raise the risks in your portfolio beyond your tolerance levels. An MFD analyses your entire portfolio to identify funds with excessive risk and suggests measures that rebalance your investments for optimized results.

Customized Advice

Your financial goals and situations can evolve and change forms (like saving for education or creating an emergency fund). Your MFD can provide personalized recommendations aligned with your goals and timeline.

For example, they can recommend SIPs for accumulating a retirement fund or lump-sum investments to achieve your short-term goals.

Timely Adjustments

Life is unpredictable and may throw curveballs. Additionally, the markets are dynamic and evolve with time. Regular adjustments to your portfolio help account for these irregularities and contingencies.

For example, your MFD may advise you to reallocate overvalued assets to avoid potential losses.

DIY Review Checklist

If you want to conduct your own mutual fund portfolio review, you can focus on a few key metrics to ensure that your investments stay on track:

Returns

Start by comparing the current returns of your funds with their respective benchmarks or historical performance. For example, if you have an equity mutual fund that has consistently underperformed the S&P BSE index, you may need to reevaluate it.

Expense Ratios

High expense ratios can diminish your returns, especially when you stay invested with a mutual fund for a long time. Cross-check whether the expense ratio of your fund aligns with the industry standards.

For example, if your fund operates at a 2.5% expense ratio while competitors operate at 1.5%, it is time to switch to a more cost-effective option.

Risk Level

Regularly assess whether the risk in your portfolio corresponds with your financial goals and tolerance for risk.

For example, if your portfolio invests heavily in volatile small-cap funds for wealth preservation, you should consider more stable options (like debt funds).

Asset Allocation

Imbalances in your portfolio can lead to unwanted risks and missed opportunities in investment. Always check if your investments are diversified across various asset classes, such as debt, equity, and gold.

Fund Manager’s Performance

A fund’s performance depends heavily on the expertise and skill of the fund manager. Thoroughly evaluate your fund manager’s credibility and track record to get the best mutual fund returns.

For example, if your fund changes its strategy and the performance starts to decline, it is time to reconsider your investment.

Conclusion

The multifarious benefits of reviewing investments with MFD keep your portfolio and wealth on track toward growth. Regular reviews not only reduce the risk in your portfolio but also make it more agile and responsive to market dynamics.

Proactive guidance from a trusted MFD helps keep your portfolio fresh and relevant, ensuring you always capitalize on the best returns possible. You can optimize your taxes and align your growth with your dreams.

Stay on top of your investment strategy – schedule an annual portfolio review with trusted MFDs through the AssetPlus platform for simplified investments, higher AUM, and maximized earnings.

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