Assuming you had created a diversified slate of mutual fund holdings by putting the money in 5-star large-cap equity fund in the first place, with or without the assistance of a professional. You were not supposed to monitor your mutual fund investment regularly as you have been investing for long term, like a normal investor. You keep adding good funds regularly, but have not exited any yet.  Now, your portfolio shed 16 percent value as you found it difficult to stomach that schemes that returned 20 percent or more a year for the past 10 years and was accordingly rated 5-star had failed for your portfolio.

You should, now have to calm down that a 5-star rating does not mean that the fund will not be in the red when there is bloodbath in equity markets. In hindsight, it sounds easy to build a portfolio of mutual fund and keep investing in them for as long as 10 years to reap the benefits. However, the toughest part in making an investment decision is selecting the right mixing of the product, re-balancing your investment portfolio and it’s managing of mutual fund schemes you must go beyond the sage advice.

As you’ve built your portfolio of mutual funds, you need to know that the primary criterion is not that you should choose mutual funds based on its returns and the best star-rating.

managing

That is why, here, we talk about how to ‘manage’ a mutual-fund portfolio by walking through common strategies:

Mutual Fund Portfolio against Goals

This strategy needs to begin by aligning your mutual fund holdings with the role they will play in helping you meet your financial goals. Basically, if your portfolio does not have a plan or a structure, then you would use to redeem your mutual fund units as and when required. Hence, you would not able to get good returns as you have redeemed without any prior plan.

If you are adding money to your portfolio today, how do you decide what to invest in? If you already have a plan or structure, then adding money to the portfolio should be really easy. When you link your SIPs in mutual funds with your goals, you would have been better tracking.

Let’s say, this is about investing for your daughter’s marriage as invested through SIP in two mutual funds. Your aim is no touch for next 10 to 12 years. Come what, you would not cancel or redeem such mutual fund units and ultimately, there are greater chances that you would get high returns while you set goals and invest for them.

Rebalancing Your Portfolio

Rebalancing a portfolio of mutual funds is simply the act of returning one’s current investment allocations back to the original investment allocations. Therefore rebalancing will require buying and/or selling some part of your mutual funds to bring the allocation percentages back into balance. In different words, rebalancing is an important maintenance aspect of building a portfolio of mutual funds, just as an oil change or tune-up is to the ongoing maintenance of your car.

The reason why you rebalance your investment portfolios in the first place is important to understand. Often certain mutual funds schemes will do better than others over a given period of time. For example, over the course of one year your equity mutual funds could do extremely well but your debt funds could perform poorly. If, your original allocation was 80% in equity schemes and 20% bonds, your end-of-year allocation may now be 90% in equity schemes and 10% bonds. This may expose you to unwanted risk. Conversely if schemes door poorly and bonds do well, the next year you may be taking a lower level of risk and may miss out on gains in the stock market.

But how often should an investor rebalance his or her portfolio? It is rare that large swings in financial markets will cause your portfolio of mutual funds to dramatically change your original allocation percentages.

Conclusion

Investing in mutual funds through an SIP may not give the kick that daily trading gives, but when it comes to investing for the long term, a disciplined approach is better than direct speculative investment in stock market and don’t try to be too experiments with your hard-earned money. The most successful investors in the world are successful because they have a discipline to manage money and they have a plan to invest.

Warren Buffet said it best: “To invest successfully over a lifetime does not require a stratospheric I.Q., unusual business insight or inside information. What is needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework.”

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Suresh Kumar Narula

SEBI Investment Advisor, Founder & Principal Financial Planner at Prudent Financial Planners
Suresh K Narula is founder and Principal Financial Planner at Prudent Financial Planners. He has earned the professional CERITIFIED FINANCIAL PLANNER and got registered with SEBI as Investment Advisor. He writes on personal and financial planning articles and got published in Dainik Bhaskar, Business Bhaskar and The Financial Planner's Guild, India. He is also a member of Financial Planner's Guild India ( An association of practicing SEBI registered Investment advisers) to create awareness about Financial Planning in general public, promote professional excellence and ensure high quality practice standards. Suresh received his an M.com from Himachal Pardesh University and an MFC from Punjab University, Chandigarh. He can be reached at info@prudentfp.in
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