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7 Tips For An Effective Mutual Fund Portfolio Performance Review

7 Tips For An Effective Mutual Fund Portfolio Performance Review

Mutual fund is where many of us have invested our hard earned money. For this mutual fund investment portfolio, we frequently think for quality not quantity and Naturally, we would like to see that we are not robbed of our hard-earned money. Particularly, when every advertisement or message pertaining to mutual fund investments comes up with the statutory warning that Mutual Funds are subject to market risks. In other words, there is no assured return. Yet, we have (wisely) invested our money in this instrument. But, is our money safe? How frequently should we be monitoring our Mutual Fund Investments? So Once Review your Mutual Fund Investment portfoli0.

Monitoring your Health:

I am sure, many of you would agree that Health is our biggest wealth. If we are healthy, we would be able to achieve whatever we wish to. Does that mean we do a daily health check? For example, do we check our weight daily? How about a CBP (Complete Blood Picture) being done daily along with measuring the Blood Pressure and Monitoring Sugar levels on a daily basis?

Even the most health-conscious people would not bother to look at their vital parameters on a daily basis. If we do not monitor our biggest wealth on a daily basis, is there a merit in monitoring our mutual fund investments on a daily basis?

Buy and Hold/ Buy and forget / “Fill it, Shut it, Forget it”

I have often heard many investment experts advocating the strategy of buy and hold or buy and forget in support of their view that investments is essentially for the long term. It is often advised that, if you hold an asset for a reasonably long period of time, the highs and lows will even out and you get a decent return over the “long term”.

This might often be true, but I disagree with this approach. Investments are made to achieve financial goals. Many such goals are medium to long term in nature. We do not want to reach the milestone for which we have been investing and then discover that our assumptions have not turned out to be true. We are short of the funds required to meet our goal. At that time, we cannot do anything. We will have to compromise on our goal.

For example, let us say one of the financial goals of Mr. Relaxo is to go for an international vacation in the year 2023 when he retires from his regular job. He estimates that he will need Rs.800,000 in 2033 for this purpose. His advisor creates an investment plan through a combination of funds such that monthly SIPs of Rs.3,000 (for illustrative purpose only and not based on actual calculations) will result in the investments growing to Rs.8 lakhs. Mr. Relaxo pursues the plan with discipline. However, when he retires in 2033 and looks at his investment, he finds that the value of his investments is only Rs.640,000. He is short of his goal by 20%. This will force him to compromise on the type of holiday he had planned. Thus, the “Fill it, Shut it, Forget it” strategy did not work in case of Mr. Relaxo. While one can compromise on a vacation, it is difficult to compromise on more critical goals such as retirement planning.

Periodic Review Of Investment Portfolio

Thus, it becomes clear that we can neither forget about our investments nor does it make sense to monitor them on a daily basis. We need to review them on a “periodic” basis. This brings us back to the original question. How often should we review our investments in Mutual Funds?

Tip #1.  Investments should follow a Financial Plan

Many people invest “just like that”. They realize that there is a need to invest and simply invest in some instrument, hoping that the investments will help them sail through whenever the need for funds arises. However, it is better to take professional help and have a financial plan. When a financial plan is made, each of your goals is specifically planned for. It addresses the questions of why do we need the money, when do we need the money and if so much is required, how much of investments need to be done and in which instruments. The combination of investments takes into account various factors that are unique to you. The plan is made on the basis of certain assumptions. One of the assumptions is the return that is likely to be earned on the investments on an annual basis. If investments do not earn the assumed rate of return, then we will fall short of our targeted amount.

Tip #2.  Do Your Regular Reading or Appoint an Advisor who does it

Mutual funds publish a monthly factsheet. It provides significant insights into how the fund is managed and what is the outlook of the fund manager/ fund house. This helps us to understand the thought process of the fund manager. It is advisable that we read the fund factsheet. This is like reading a newspaper. One must remember that reading of fund sheets is possible only if we have limited number of funds. If we have invested in every Mutual Fund that our advisor has recommended, then reading the fact sheet becomes time-consuming.

Tip #3.  Review Numbers Quarterly

A quarter is a good time to look at how the fund has performed, particularly against its benchmark and other funds in the same category. For example, if you have invested in ICICI Prudential Balanced Fund, its benchmark is  Crisil Balanced Fund Index (Aggressive) and its peers against which it can be compared are HDFC Balanced Fund, Birla Sun Life Balanced ’95 Fund, SBI Magnum Balanced Fund, etc. It gives us a good insight into performance of the fund within its specific category

Tip #4.  Take Action if required Annually

Having watched the funds for over 4 quarters, having read the fund manager’s thought process over 12 times in that year, you will get a fair indication of whether the fund is moving in the right direction and whether the returns earned are in line with our assumptions.

Also look at how it has performed vis a vis peers. If this fund has missed its mark by a distance, have other funds also under performed? Is there a change in the fund manager? Is there a change in the fund manager’s investment philosophy? Does your investment objective align with that of the fund? Although you would have considered the performance of the fund before investing, look at how the fund has performed over the last 5 years.

Going by all the factors, do you feel that you should continue with the fund, exit from it or keep it under an active watch for some more time? Personally, I will give a fund at least 1-3 years before I decide to exit from it. Of course, this is on the assumption that I have done my homework at the time of investment. It is strongly advised that this exercise is carried out with your financial planner.

Tip #5.  Keep in mind Tax implications of Switching

Many times, we may exit a fund on emotional grounds. Even if you and your financial planner have decided to exit a fund, look at the tax implications of the same. This will depend on the period of holding and the type of fund. For example, let us say you have held an equity fund that has returned 9% in the past one year whereas other funds have returned, say 11% term and decide to exit from the fund.  It has been 11 months since you invested in this fund. Exiting now would mean you will have to pay Short Term Capital Gains tax. If you hold on for one more month, the investment becomes long term and becomes completely exempt from tax. Similar concerns may apply for ELSS funds.

Tip #6. Be clear on where to redeploy

If at all you decide to exit a fund, you must have a plan in terms of how the money received on redemption will be deployed. It would be criminal to keep the money idle in a bank or to just spend the money buying the latest gadget. Thus, do not exit a fund without being clear as to where the money would be reinvested.

Tip #7. Avoid Churn

As I stated before, While I am keeping myself abreast of the developments on am monthly basis, making peer comparisons on a quarterly basis and reviewing my entire portfolio with my financial planner on an annual basis, I would give at least 1-3 years for my fund to deliver on its performance, before I decide to exit the fund. Frequent churns are unnecessary and can only help the middlemen, if you are still investing in regular plans. However, drastic events, particularly anything that points out towards the integrity of the fund manager or of the AMC, should warrant a quick exit.


The idea of investing through Mutual funds is to gain from the services of a professional manager, who knows his/ her job. However, it is our money and we need to be in control. Be aware of what is happening through the monthly fact sheet, review quarterly and act not more than once a year. Take the help of a Registered Investment Advisor in this process.

Happy Investing !