[Read: How to Make the Most of Market High With Best Mutual Funds]

My cousin, Soham, asked me "Aditi! Did I invest in mutual funds at a bad time?"

Amused, I asked, "What makes you say that?"

"As per our previous discussion during Ganpati holidays, you suggested that I should invest for my retirement through mutual funds. So, I did, but all I can see is the red colour of underperformance of the portfolio, even when the markets are up."

[Read: 8 Great Investment Lessons To Learn From Lord Ganesha]

I explained, "Look, if you have created a financial plan, with a long-term investment horizon, ignore the current market conditions and keep a bird's eye view on your goal. This will help you stay focused and short-term underperformance won't distract you."

Chinmay, my other cousin, overheard our discussion, and he interrupted me, "But what about continuous underperformance of schemes for an almost a year or so? How can you tell us to keep focusing only on the end result and not the undercurrents that are impacting the overall portfolio?"

Even my uncle, Soham's father asked, "Yes, exactly, what should be done?"

Everyone present in the room looked intently at me, to listen to what I had to say next.

I elaborated,

Today is Laxmipujan, and we will be playing a game of poker.

As per the game, we all will bet into a pool (pot), whose value will change as per the progression of the game and the value of hand will be as per the will to beat others at the game. Variants largely differ on how cards are dealt and the methods by which players can improve a hand.

Similarly, mutual fund investment is a pool of investments made, but the performance varies as per the market conditions. Now as in the game every individual, keeps checking (reviewing) their cards before placing a bet, in order to not lose. If they feel there is nothing worthwhile, they will exit the game; and while some may increase the bet amount, another would be ok with the current bet amount and continue to be in the game as he thinks he does have a winning chance.

If you relate mutual fund investment with the game, as reviewing the cards at each turn is important, similarly it is as important to review your portfolio. Unless you have all three aces in hand, you wouldn't want to review it, but that's not possible in Mutual fund investments, hence make sure you review it.

[Read: Is Your Mutual Fund Portfolio On Track To Accomplish Your Financial Goals?]

Review and monitor your portfolio periodically to keep a track on the growth performance of the portfolio before the financial goal/s transpires. It is essential that you must review your investment portfolio bi-annually to rebalance it as per personalised goal-based asset allocation. This is a relatively good frequency. If you have selected mutual fund schemes thoughtfully, then reviewing and rebalancing the portfolio too often may prove to be inappropriate.

It is likely that you may have invested a good amount regularly, but the scheme proved to be a non-performer.

You may ignore underperformance due to short-term turbulence or volatility in the market, or possibly because the fund manager took a contrarian bet to the market. It may take some time for the fund to overcome the volatility and the fund manager's strategy to pay off.

However, when a mutual fund scheme continues to repeatedly and consistently underperform over a longer period, then it is a sign of poor quality of fund management and you need to deal with it seriously. The following could be some of the reasons for it:

Though you might be worried about your mutual fund investments, don't shun mutual funds or discontinue your Systematic Investment Plans (SIPs) in haste.

Consider analysing the performance of your mutual fund investments, not just in the recent past, dig deeper. Try to find out how have they performed over different market phases.

[Read:  Things To Do To Keep Track Of Your Mutual Fund Performance & Investments]

"So how do we analyse the performance?", Chinmay questioned.

I continued ...

Consistency of your mutual fund portfolio across market cycles plays an important role in your success as an investor.

Inconsistent funds may generate high returns in the bullish phase, but what purpose will it serve, if it can't protect the downside under bearish market conditions?

[Read: Why To Evaluate Mutual Fund Performance Across Bull And Bear Market Conditions]

Note that, interestingly, under bearish market conditions, mutual funds find it difficult to outperform Nifty 50; and under bull market conditions, it's hard to outperform Nifty 500.

Primarily, choose worthy schemes only after evaluating the performance of schemes based on qualitative and quantitative parameters to add to your portfolio.

And later, it is vital for you to track their performance regularly. Don't rush to sell them for their occasional underperformance, only eliminate persistent underperformers.

After all, there are benefits of reviewing your mutual fund portfolio:

1. Helps to spot the weeds or duds that drag the performance of your portfolio down.

2. Will enable you to add a suitable alternative mutual fund scheme.

3. You can add a new scheme that has outperformed than the benchmark and peers across cycles you weren't aware of and may help you accomplish your goals faster.

4. Allows you to optimally re-structure your portfolio as per your risk profile, financial situation, and investment time horizon.

5. The portfolio must be aligned to your envisioned financial goals at all times.

A loud burst of crackers brought us out from our deep discussion of mutual fund underperformance. Everyone who was attentive thanked me. They asked, "But what if we aren't aware of how to go about it?"

Remember every mutual fund comes with its own strengths and weaknesses, and it actually depends whether it suits the investors, risk profile, broader investment objectives, financial goals, and the investment horizon before goals are realised, among many other aspects.

So, just as you avoid self-medication and consult a doctor when it comes to your medical health, it is best to approach a Certified Financial Guardian, who can comprehensively review your mutual fund portfolio and provide all the information and recommendations in a 'special customized report'.

The analysis includes:

1. Studying the mutual fund house's investment philosophy, processes and systems.

2. Studying the scheme's long-term performance (at least for 5-10 years), across market cycles.

3. Performing risk-reward analysis, judging portfolio concentration (company-wise and sector-wise), strategic consistency and quality, etc.

4. Checking the fund manager's long-term performance and overall work experience.

5. The asset allocation of your portfolio

6. The category-wise holding of your portfolio

7. The AMC wise exposure of your portfolio

8. SIP/STP/Switch analysis

9. The risk analysis of your portfolio

10. And recommendations/action plan with meaningful comments to strategize your portfolio

A mutual fund portfolio review service will offer a course correction, if needed, and serve in the interest of your financial health and wellbeing. Get your portfolio reviewed today!

Everyone got up in unison and said, "Let's go do Laxmi puja to ask for the divine's blessings so that we will make wise decisions like investing in worthy funds, review portfolio periodically and consult a specialist for it to prosper."

Editor's note:

I hope you will set up that review meeting with your financial planner without delay if you haven't done it yet. To get your portfolio reviewed today, opt for PersonalFN's Mutual Fund Portfolio Review service to check how healthy your portfolio is and get Buy/Sell/Hold recommendations on your existing portfolio, keeping in mind the facets discussed in this article.
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​Take action now. PersonalFN will be happy to help you.

Happy Investing!

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