When To Alter Your Mutual Fund Portfolio

Today almost 90% of the Indians are aware of mutual funds; Thanks to “Mutual Fund- Sahi Hai” campaign by Amfi. As a part of investors awareness sessions many amc’s(mutual fund houses)are creating awareness on mutual fund sip’s(Systematic Investment Plans)

Because of the interactive sessions conducting by amc’s many retail investors are investing through sip route. But due to lack of awareness they are ceasing sips, redeeming their money in market falls even today they are not aware of investing routes in mutual funds. They assume “mutual fund sip is a product and they are investing in sips”. What they have to know is – ” Sip is one method to invest in a Mutual Fund”. They are investing “Systematically Through Sip Route”

Generally investors invests in a mutual fund scheme for long term. But due to volatility fear and lack of awareness they shuffles their portfolios frequently. If they tend to shuffle portfolios frequently they will never make huge profits(Gains)through the mutual fund route.

So to create wealth one should not alter/shuffles one’s portfolio frequently. However , they are some exceptions to this- One should alter his portfolio only when-

  • Investor is Nearing his Goal- Generally investors invests with a “Goal in Mind” and he should redeem his portfolio systematically(Either through SWP or STP)before his goal due date. Especially if it is non-negoitable goal(childrens education, marriage, own retirement)you should never compromise on the market-downfall(bear phase)

Set Systematic Withdrawal Plan(SWP) to your bank account at least 2-3 years before the goal due date (or)set Systematic Transfer Plan(STP)to safer instruments like debt funds.

  • Don’t Wait For Last Minute in Anticipation of More Profits– Generally investors don’t want to redeem their investments in anticipation of more profits during bull run. They expect more and more profits and wait for the last moment of the goal date. What happens if the market corrects sharply 15-20 days before your goal date? Take example of corona crises, if an investor wait for the last moment for which his goal due date is April 2020 almost 30-40% of his gains erode during market crash. So don’t be greedy, redeem your investments systematically atleast 2-3 years before the goal due date.
  • If the Mutual Fund Scheme is Underperforming Consistently– Compare your funds performance over its benchmark and peer group (schemes of other fund houses)returns.

If you feel your fund is underperforming consistently, don’t press the “Redeem” button in panic. Take some time to review the reason for funds performance because some great funds too underperforms in volatile times, so do “Watchlist” your scheme performance at least 3-6 months and if you still find it is underperforming then “Redeem” your investments

  • Change in Fund Manager– The role of a fund manager is critical in schemes performance. If a great fund manger(with amazing track record)quits the fund house, then you should carefully watch your schemes performance for a while.

Do keep an eye on the new fund manager’s investing style and if you feel his investing attitude doesn’t suit your risk profile, then you can switch to a better-performing scheme.

  • Your Goals are Changed– As humans our goals tend to change from time to time. Your long term goals may become Short-Term and your short term goals can be deferred for some more time.

In such cases, you can shuffle your mutual fund portfolio based on your short-term, medium-term and long -term goals.

But do remember you are investing in mutual funds with a “Goal in Mind”. You can alter/Shuffle your mutual fund portfolio only any of the above clauses are applicable. Up to some extent if your investment objective is changed you can make changes to your portfolio.

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