Reviewing Mutual Funds Portfolio

Introduction

• Redeemed two underperforming mutual funds.
• Reinvested in different funds of the same category.
• Justification: Poor performance over 1.5 years.

What Constitutes Poor Performance?

• No strict definition:
  • Good returns: 10%, 20%, even 40%.
• Impact of market correction and conditions.
• Poor performance is relative, not just about returns.

Why Review Mutual Fund Portfolio?

• Essential for every investor after one year.
• Helps ensure hard-earned money is monitored.
• Not focused on stock portfolio but mutual funds.
• Patience is key: Monitoring daily or weekly is not suggested.

Misconceptions About Mutual Funds

• Past great performance doesn’t ensure future returns.
• Avoid basing investments solely on high historical returns.
• Consistency over short-term gains.
• Encouraged to review portfolio at least once a year.

Steps to Review Mutual Funds Portfolio

1. Fund Performance

a. Mutual Fund vs. Benchmark

• Every fund has a benchmark (compulsory).
• Example: Axis Blue Chip Fund vs. S&P BSE 100 TRI.
• Compare fund's performance against its benchmark.
• Importance of tools like Moneycontrol.com for comparison.

b. Consistency in Performance

• Consistent beating of the benchmark is crucial.
• Compare with other funds of the same category.
• Example: SBI Blue Chip vs. Axis Blue Chip.
• Check metrics like AUM (Assets Under Management).

2. Portfolio Overlap

• Checking for overlap among similar category funds.
• Example: Overlap between two Flexicap Mutual Funds.
• Tools like TheFundoo.com to check overlaps.

3. Other Relevant Factors

a. Change in Fund Manager

• Impact of change in fund management on performance.
• Assess experience and reason for the change.

b. Change in AUM

• Significant changes in fund size need attention.
• Decreasing AUM might indicate investor exit.

c. Change in Expense Ratio

• Small increases are acceptable if performance is good.
• Poor performance coupled with a higher expense ratio is problematic.

Conclusion

• Review mutual fund portfolio regularly (at least once a year).
• Aim for funds with consistent performance and minimal overlap.
• Monitor relevant factors like fund manager changes, AUM, and expense ratio.
• Stay informed and patient while investing.

If any important points are missed, comment and inform.

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