HOW OFTEN SHOULD YOU CHECK AND REVIEW YOUR MUTUAL FUND?

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Many of you might be aware with the popular fact that investing in mutual funds helps to build wealth over time. But, mere saving and investing does not do the job. One needs to constantly monitor the markets and their fund’s performance to analyse if their mutual funds are doing their job of making money for them. You also must have heard it time and again that a fund’s past performance is not a definitive indicator of its future returns, which is absolutely true. Before you invest in mutual funds, you are required to conduct a through research and analysis to decide the best type of mutual funds for your portfolio. It is also advised to regulate and portfolio on a regular basis and rebalance it as and when required. Let’s understand how to do that.

How to evaluate the performance of your mutual fund investment?

Rebalancing your portfolio is quite essential as it helps to maintain your risk appetite and eliminate the investment options that are not working for you.

Benchmark index

The performance of the fund against its underlying index is quite simple. You can directly do it through the fund fact sheet. The relative performance of the fund against the benchmark is referred to as alpha. If your fund is delivering higher returns than the benchmark, then it is believed to deliver positive alpha. Investors should try to invest in mutual funds that deliver positive alpha.

Non-performing mutual funds

Rebalancing your investment portfolio will help you to identify mutual fund investments that are delivering poor returns. If the fund is constantly underperforming, you might want to switch it with another fund that matches your portfolio.

Peer funds

One must also compare the performance of a mutual fund scheme against other peer funds in the same category. The performance of a fund against its peer fund can be a better indicator than against its underlying benchmark. This is because the performance of the benchmark could have withered down due to exceptional movements within a stock group.

Before you rebalance your financial portfolio, you must keep a few factors in mind. These are:

1.   Changing financial goals – As you grow, your financial objectives are likely to change. You might want to make the necessary changes in your portfolio basis the change in your financial goals. For instance, you might want to rebalance your portfolio after taking into factor several parameters such as inflation, increased standard of living, addition or subtraction of financial dependents, etc.

2.      Broad diversification
Though it is recommended to diversify your investment portfolio across different sectors, excessive diversification might result in inefficiency.

3.      Long-term investments
An investor must be very patient with their long-term investments. They must have it in themselves to oversee the short-term inconsistencies in their long-term investments.

Mutual fund investments are subject to market risks. Read all scheme documents properly before you invest in mutual funds. Happy investing!