Why should you monitor and review your fund

As an investor, you always remain curious to know about the performance of your portfolio that you can ultimately benefit from them by earning good returns. And this calls for regular monitoring of your mutual fund and its periodic review. Now, why should you monitor and review your fund? Let us discuss this in detail.

Why should you review?

Many say investors who got some of the highest returns were the ones who made investments and then forgot about it. Churning is terrible, and if we do not give our investments sufficient time to grow, we may end up with low returns and, even worse, that is, losing money.

However, this is partially true because, in mutual funds, the power of compounding brings best returns over a very long investment horizon. There are cases when many investors hold underperforming funds for a long time and fall short of their goals as some funds in the portfolio may be underperforming for a long time, and you come to know about them when it is too late.

Therefore a review process should be in place to ensure that you are on track with your goals and you can take corrective actions whenever required.

What is relative performance and how it helps to decide?

A fund’s performance cannot be judged in isolation. Compare its performance with others in its category each month or quarter if you want to know how your fund is performing over a specified period. But the comparison needs to be appropriate by choosing peers correctly within the relevant category and never compare apples to oranges.

If you find that its performance remains sub-standard consistently, that is, the returns are below category, average or benchmark index when most of its peers are doing well, it can be enough reason to switch to another well-established fund in the same category.

How mutual fund’s performance can be reviewed?

There are certain mandatory public disclosures that the funds provide, which give insights into their performance. Every fund house displays the net asset value (NAV) of each scheme daily on its website. It can also be checked from the AMFI (Association of Mutual Funds in India) website. You can easily calculate the value of your investment by multiplying the NAV with the number of units held.

The fund houses publish the portfolio of a scheme every month containing a list of securities in which the scheme has invested and their weightage. Fact sheets have a portfolio and other schemes related to information that helps to understand the portfolio risks.

An investor receives a CAS (consolidated account statement) every month or half-yearly with the records of the transactions and the value of the investment on the given date. In this statement, an individual gets the details of all the financial statements as a whole.

Usually, when the key attributes of scheme changes, an email is sent to the investors’ mail id informing them about it. These changes affect the scheme performance that should be evaluated. SEBI (Securities and Exchange Board of India) has made it mandatory for the fund houses to provide an exit option when such changes occur.

Benefits of reviewing your fund

Investors invest in different classes of assets over some time to spread their risks. Some of the investments do well, while some others fail at times due to market conditions. Thus, it is essential to review your investments from time to time to get the answer to the following six questions.

1. Are you on track?

It helps to ascertain whether the performance of your investments is in line with the expectations and also checking whether you have achieved your set goals or not.

2. Is rebalancing required?

A review of funds necessitates rebalancing of funds if required. Rebalancing is the act of making adjustments in the asset mix in your portfolio so that they perform as per your long-term financial goals.

3. How much more would you invest?

Everybody aspires to earn more. Salaried individuals usually get an annual increment; similarly, professionals can often see growth in their income. A periodic review helps them to assess how much more they can invest and help them channelize their money into investments periodically.

4. Who is a poor performer?

A periodic review also helps to identify a consistently poor performer. The segment in which it works may perform poorly, or perhaps it may have taken one or more bad calls. Whatever is the reason you need to know, ask your adviser.

5. Is there any change that is affecting performance?

Sometimes, fund managers leave, or there is a change in management. It becomes vital that the investor tracks the changes in the fund’s portfolio after the change in management. Such changes might infer a fundamental shift in investment style or bring a distinct difference in how the fund manager handles the portfolio.

There may be many alterations in its holdings. The fund manager is focusing on delivering immediate results by exploiting short-term opportunities. In that case, returns can witness a boost based on near-term performance, but may make your fund highly vulnerable in the long run. Therefore periodic reviews help you take a comprehensive look at what’s going on and decide whether you will wait or look elsewhere.

6. How often should you review and when?

Experts advice that you should review you fund at least every six months. If there is a change in management, you need to watch the fund’s performance at least for 2-3 years to get an idea about how the mutual fund scheme is shaping up. Do not get influenced by performance figures over a short period as that cannot depict an accurate picture of the fund’s performance. Give the new fund manager or asset management company (AMC) some time to prove ability.

Now, you know that as an investor, you always have to monitor and review your fund. In case you invest directly with the AMC, you have to watch your investments more closely and review more frequently. But, if you have a financial advisor, you have to put less effort. Ensure that your advisor flag issues and call you, if some corrective steps are required or if some new opportunities emerge.

That’s why Comparte Investment team asks do you have “Nivesh Ki Aadat”.

With this one can say “Mutual Fund Sahi hai”,  so let me do Nivesh