Why do you need to analyze your mutual fund portfolio?

2 Mins read

It is essential to analyse a mutual fund portfolio every six months. Investors believe that once they invest in a mutual fund their duty is over. All that is left is to wait and expect the funds to multiply over the long-term and give them the desired capital appreciation. This is not the ideal way to invest in mutual funds and accept returns. Although it is true that one does not need to have in-depth market knowledge and understanding about financial planning in order to invest in mutual funds, that doesn’t mean investors should completely turn a blind eye on their investments after investing.

Mutual funds are professionally managed funds that invest across various securities and asset classes. What Asset Management Companies owning mutual funds to is that they collect money from investor sharing a common investment objective and anyways this pool of funds across various money market instruments like corporate securities, government bonds, treasury bills, commercial papers, certificate of deposits, debentures, call money etc. mutual fund investors are allotted units in quantum with the investment amount or depending on the funds existing net asset value.

The primary reason to invest in mutual funds to achieve a life short term and long term financial goals. But what is the mutual fund scheme has been performing as per your expectations? Should you still continue investing even when knowing that the scheme has been able to outperform its underlying benchmark? This is why investors need to keep a track on the mutual fund investments they have in them so that they are able to measure the performance of the funds. Remember that it is your hard earned money that you are investing. When you evaluate the performance of your investment portfolio, you are not keeping a track on the performance of your mutual fund at the same time you are also comparing each performance to other funds not found in the same category. This can give investors a clear idea whether they need to continue investing in the same funds or whether they need to switch to a better performing fund.

The mutual fund scheme that you invested in might be performing as per your expectations when you invested in it. But how can you be certain that that will continue with similar performance in future as well? This is why evaluation of a portfolio is a must. You need to make sure that the fund is performing perfectly fine so that it still holds the potential to help you with your life’s short term and long term financial goals. Other mutual funds in which you have not invested in may hold the potential to give consistent returns over the long term. However, you won’t be able to switch to a better performing fund if you do not evaluate your portfolio. If the mutual funds that you invested in are underperforming even when the markets are doing well, this is a sign that you need to re-evaluate or rebalance your mutual fund portfolio. If the markets are doing well and your mutual funds are underperforming, then it is time to reevaluate or re balance your mutual fund portfolio. Mutual Funds are volatile in nature. Depending on which asset class the fund manager decides the performance of a mutual fund may fluctuate. If the underlying assets of the mutual fund you invested in are underperforming, there is  a very less chance of you earning capital appreciation through those investments.

If you are new to mutual fund investing and you need assistance in evaluating your existing portfolio, feel free to consult a financial advisor.