While investing for any specific goal, we always
assume some rate of return from the investment based on some rationale. Actual
return may vary time to time from assume return, so it becomes very important
to check whether we are getting that return or not. We also need to check how
various asset class and schemes are performing in our portfolio. This exercise
is known as review and it should be done on periodic bases. Ideally once in a
year, you must review your portfolio.
Reviewing doesn’t necessary means frequent buying
and selling based on performance. The return which we assume is for the CAGR
return for entire period of investment and need not to be equal to assumed CAGR
every year.
How to review your mutual fund schemes:
You can review the performance of your scheme and
compare it with the performance of benchmark. Apart from benchmark you can also
compare it with peer group performance.
Performance of good scheme also may lag in some
times, so short term performance should not be given too much of weight while
doing the review of the portfolio. Rather than short term performance, you must
consider long term return and consistency in performance.
Apart from return you also need to compare your
portfolio on other parameters like risk, risk adjusted return and quality of
portfolio while reviewing the scheme.
If scheme underperforms on all the above parameters
you should exit the same and invest in some other scheme.
But, remember review doesn’t necessary means buying
and selling every time while you review. The decision of exiting should not be
based on short term underperformance noticed during review. You need to adapt
holistic approach of reviewing the scheme by taking in consideration of other
important parameters also apart from short term return.
Once you know where you are going by setting
appropriate investment objectives, your portfolio review will help you reach
your destination. How? By identifying problems and mistakes that you can
correct midcourse. Much like a pilot, your job is to stay on course so that you
can reach your destination safely and in a timely manner.
#niveshsimplified #fundvaliz #mutualfundsahihai #investment