How Should You Conduct an Annual Portfolio Review?
Conducting an annual portfolio review for your mutual fund portfolio is essential to keeping your investments on track and aligned with your financial strategy. This helps you make adjustments to optimise performance, address misalignments, and maximise your potential to achieve long-term financial goals.
Here are the steps you can follow to conductan annual portfolio reviewfor your mutual fund portfolio:
1. Revisiting Your Strategy:
The first step in conducting a portfolio review is to revisit your investment strategy. This involves reassessing your financial goals, asset allocation, and exposure to market caps and AMCs. By revisiting your strategy, you can make necessary adjustments based on your current circumstances and market conditions.
a. Goal Reassessment: Start by reviewing your financial goals. Consider if any new goals have emerged and if your existing goals have changed. Evaluate the time horizon, risk tolerance, and liquidity requirements associated with each goal. Additionally, factor in the impact of inflation to ensure your goals remain realistic and achievable.
b Asset Allocation: Examine your current asset allocation and determine if it aligns with your risk appetite and investment horizon. Consider the proportion of asset classes in your portfolio. Adjust the allocation based on your risk tolerance and market outlook. For example, you may decide to allocate a higher percentage to equities if you have a longer investment horizon and a higher risk tolerance.
c. Exposure to Market Caps: Evaluate the allocation of your portfolio across different market capitalizations, such as large-cap, mid-cap, and small-cap stocks. Consider the growth potential and risk associated with each segment. Maintaining a balanced allocation, such as 55% large-cap, 20% mid-cap, and 25% small-cap, can help diversify your risk and capture opportunities across different market caps.
d. Exposure to Asset Management Companies: Check your exposure to different AMCs to avoid over-concentration in a single fund house. Diversifying your investments across multiple AMCs reduces the concentration risk associated with relying on a single fund manager.
2. Identifying Deviation from Strategy:
Review your portfolio to pinpoint assets that no longer align with your investment goals or strategy. Evaluate each holding's performance, risk profile, and suitability, identifying underperformers or redundant investments. Analyse historical returns, risk-adjusted metrics, and expenses to ensure every asset contributes positively to your portfolio's objectives.
3. Rebalancing Your Portfolio with Current Strategy:
Once you have identified any deviations from your strategy, it is time to rebalance your portfolio. Rebalancing involves adjusting your asset allocation to realign it with your intended strategy and risk tolerance. This process ensures that your portfolio remains in line with your investment objectives.
Start by trimming or exiting underperforming assets that no longer align with your strategy or financial goals. Consider the tax implications and potential exit loads associated with selling investments. Seek opportunities to reinvest the proceeds into assets that better align with your revised strategy and offer better growth prospects.
Conducting an annual portfolio review is crucial for maintaining the alignment of your investments with your financial goals and risk tolerance. Financial markets and your personal circumstances can change over time. Therefore, it is essential to review your portfolio regularly, staying informed about market trends, and adapting your strategy as needed.