Portfolio Review in April

10 things to look out for while reviewing mutual fund investments

We are stepping into a new financial year FY 19-20. In the last year we might have invested in mutual funds or started some new SIPs. These are the things that we know. There might be some other things that we may not be aware of.

What are they?

Are our investments growing good?

How many of us analyse or review our investments?

Is it enough if we just invest and forget? No is the answer.

What is the status of our investments? Final return? Profit? Loss?

Analysing our investments is paramount important.

How do we start? Where do we start? Here are the 10 important things to look out for.

1. Investment restructuring

At least once a year, it is good to collect details about our investments, analyse the profits and losses, check if any changes need to be done to any investment and acting on those terms is ideal. This is called asset re-balance. For simplicity, we can call it as reviewing our investments. All our investment info like the number of units or the total investment can be found online using services like Camsonline or Karvy mfs (https://goo.gl/t6G7BS). You can access all the info related to your investments at one place at any time. Depending on the net worth and distribution of equity percentage and debt percentage of our investments, we need to take an informed decision about either increasing our investments on the equity side or on the debt side. It is important to review our investments at least once a year and April is a good time to do it.

2. In how many schemes should you invest in?

First, we need to check how many investments we have made. It is good to have less than ten investments. Then we must segregate our investments. We must check if we have a lot of investments of the same type. For example, if the mutual fund house (AMC) is having small cap funds in their offerings, we need to check how many small cap schemes we have invested in. If we have a lot, we need to keep only the ones that we believe will do good and should cash out on the remaining.

3. Schemes and their review time-frames

(a) Equity Funds

Keeping equity plans for a long time is usually beneficial. Looking at one or two year returns and changing them is not good. Should keep equity plans for around four or five years and then depending on their performance, should take an informed decision. The important thing to note here is, after one year if we move out of equity plans, the profits accrued is not taxable up-to one lakh.

(b) Debt Funds

The main thing to keep in mind while switching away from debt funds is that, if we plan to switch away from debt funds within three years of investing in them, we will have to pay short term tax.

(c) Hybrid Funds

Hybrid schemes are mostly equity plans. There are also some debt-based plans. When switching, we must act according to their type and the tax applicable on them,

(d) ELSS

These plans have a lock in period of three years. Because of tax concessions, we will not be able to exit out of these plans before three years. For three years, no changes can be made to these plans.

(e) Goal Based Investing

There are not many reasons to move away from retirement based plans or plans for the children. When child care plans mature, we can reinvest them in equity-based plans on the child’s name itself or cash in on the investment and use it for the kid’s education purposes. Similarly, pension schemes are usually moved into debt schemes after they mature. The basis behind reinvesting the pension funds into debt schemes is that there will be a consistent cash flow for day to day expenses. But this is not a necessary one. Depending on the income source of a person after he retires, he can choose to invest in equity plans also and see profits out of them. If there is a need to use pension funds for post-retirement life, then investing them in debt-based plans is a sound option.

4. Function of Schemes

It is important to review our schemes portfolio disclosures and see how they are performing. Mainly debt securities. We should also check where all our mutual fund schemes have invested. There are a lot of debt securities that are in losses and holding papers of companies facing cash crunch. Therefore, we should check our schemes to see if they have invested in those debt securities or in similar dubious ones. If our schemes have invested in those dubious ones, we should then check how much profit or loss we will incur because of our schemes having invested in those securities. If those schemes are expected to give continuous losses, then it is better to discontinue those schemes.

5. Factors to Change Schemes

Let us see in what all situations we must consider changing our investments. If the fund manager of the scheme changed in between, we must see if the scheme is doing good under the new fund manager. Then, in recent times if there were some holdings changes to our scheme, we need to check how good has it been for the last one year. If the modifications have not positively improved the scheme, then we should think about changing the scheme. We know that because of fluctuations in the market, our profits will also vary. If the similar kind of scheme from another fund house increases and our scheme decreases, then we need to analyse it a little deeper. For example, some four or five IT schemes might be doing good in the market, but the IT scheme that we hold might be doing bad. In that case, we need to research why our holding is doing bad and then must consider switching.

6. Schemes and Circumstances

Today’s situation is different from the time we started to invest. The decisions that we took keeping in

mind the environment at that time might not hold true today. We must have envisioned a different future and taken those decisions and today might be completely different to what we thought. If we feel that the decisions we took earlier are wrong, then we should try to correct our mistakes. It doesn’t make sense to persist with them.

7. Schemes and tax savings

At the end of the year, our capital gains are taxable depending upon the scheme. It's a bit harder to take Capital gain details from each institution for each scheme. So, we can go to CAMS / Karvy / Franklin / Sundaram sites and gather all info relating to a Capital gain details without visiting each institution it belongs to.

8. Schemes and our Information

We often change our SIM cards. Our e-mail id changes. When we shift to a different city, our banking

location changes. Therefore, once a year, we need to see if our information is correct in the schemes,

otherwise it is very important to fill out the forms and make our information correct.

9. Schemes and exit load

We need to know how much of the profit will be reduced by the exit loading if we decide to change

schemes. We need to understand whether exit loading is there or not, and if its there, is it ok to continue to change schemes? In equity schemes, if we change within a year, then there is exit loading. In debt schemes, it depends on the nature of the scheme. So, it is good that we understand about these before we decide to change schemes.

10. Liquid Schemes

If we want to withdraw money for emergency purposes, then it is advised to invest in liquid schemes so that we can withdraw money without any exit loading.

In Conclusion

It is not good to change plans after being invested in them only for a short time. Similarly, it is also not good to just invest and forget about the investment for a long time. As explained earlier, it is good to review our investments yearly once and April is a good time to do that.

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