We hope you remain in the pink of health always.

But, on the occasions when you feel unwell, a trip to the doctor is usually recommended. Based on the diagnosis, the reputed medical practitioner will prescribe medication to get you back in good health. Naturally, the medication differs depending on the type of illness.

Even if you are in the best of health, many recommend a routine health check-up to ensure your body can withstand other diseases.

Just like your physical health, your financial health also needs to remain always in the pink.

When you begin investing, it is important to assess financial goals—both the amount of return required and the risk tolerance. Once that exercise is completed, investing should not be a “set it and forget it” exercise.

You need to look far into the future and make several assumptions when planning investment goals. But, in reality, markets can change quickly. A market crash has the capability to wipe out a significant portion of your wealth.

Thus, it is necessary to regularly inspect your own plan to ensure it is equipped to safely navigate the journey to your goals.

You need to review all investments, including mutual funds, at least once a year. If analysing risk and return seems like Greek and Latin to you, it will be best to consult a qualified and ethical investment adviser.

Just as you avoid self-medication and consult a doctor first, it is best to approach an investment adviser before making changes in your portfolio.

An investment counsellor will identify where your portfolio is imbalanced and offer suggestions to improve the asset allocation, just as a doctor makes a diagnosis based on your symptoms and writes out a prescription.

Sometimes the treatment in medical parlance may make no sense to you, but in the long run, it does cure you. In the same way, financial strategies suggested by an investment adviser may be full of jargon, but it is the end result that matters.

The doctor often asks you a few basic questions about your symptoms in order to make a proper diagnosis. Similarly, there are a few set of questions to judge if your portfolio is structured to generate long-term wealth.

You need to ask yourself:

• Have the parameters of your goals changed?
  
  You may want to prepone a vacation or postpone buying a house. These decisions require realignment of your investments.
   
• Is there a change in income and/or expenses or other factors, which are likely to affect your goals?
  
  If so, you will need to adjust your portfolio accordingly.
   
• Are you planning new financial goals?
  
  If you wish to invest towards new financial goals, rework your budget and ensure that the new goals do not create any financial stress.
   
• Is the asset allocation optimised?
  
  You need to assess if the asset allocation conforms to your risk profile. Market conditions keep changing. Your portfolio needs to be structured accordingly.
   
• Are there certain investments that are not working?
  
  In every portfolio, there will be a few laggards. With the help of an investment adviser, identify such investments and take appropriate action.

If you have invested in such mutual fund schemes, it is time to reassess your portfolio. You need to realise that mutual funds are not always perfect. Hence, there is a need to review your portfolio regularly to prune out the laggards and let the wealth creators grow unhindered. Regular portfolio reviews should be an essential part of your financial plan.

Here is how a regular mutual fund portfolio review can help optimise wealth creation:
 

1. Cull out the underperformers 
   
   This is the primary reason to review your mutual fund portfolio regularly. You do not want the portfolio returns to be dragged down by laggards. Hence, it is essential to identify such schemes early on. At times, deciding whether to sell a fund could raise a dilemma, as there is always a probability of a turnaround. This is when you can avail the services of a professional, such as an investment adviser, who will guide you to take the right decision.
    
2. Reinvest in better alternatives 
   
   Once the investments are redeemed from inefficient schemes, the proceeds need to be invested in the right schemes. This is when the best equity mutual fund or debt mutual fund must be identified. The funds need to be picked through rigorous selection processes, keeping in mind your risk profile, investment objectives, and financials goals. You may also choose to invest in existing mutual fund schemes present in the portfolio.
    
3. Consolidate the portfolio
   
   There are times when investors, left to their own devices or misguided by unscrupulous distributors / agents / relationship managers, end up with over 20-30 mutual fund schemes in their portfolio. Investing in 20 different equity funds will lead to over-diversification, which can lead to suboptimal returns. Invest in just 4-5 schemes under each asset class to achieve your financial goals. Investing in too many schemes is not only unmanageable; it could lead to inefficient returns.
    
4. Optimise diversification 
   
   As mentioned above, you need only a limited number of schemes in your portfolio to provide adequate diversification across market capitalization and investment styles. Even if you invest in a few schemes, care should be taken that the underlying portfolio or investing styles do not overlap each other. There should be no sector or industry concentration. You need to have a mix of value and growth funds, which have different market-cap bias in order to provide efficient diversification. In short, you need to strategically structure your portfolio.
    
5. Rebalance the portfolio 
   
   In simple words, rebalancing a portfolio is correcting the deviations in the original asset allocation. For example, you invested 70% in equity, 20% in debt, and 10% in gold—after a year, equity accounts for 80% of the portfolio, and gold contributes 12%. At that time, reduce the exposure to equity and gold by shifting the allocation to debt so you can achieve the initial asset mix. Rebalancing helps safeguard investments from a bad market phase not only by booking gains, but also by reducing the exposure to risky assets.

When planning your financial goals with mutual fund schemes, be realistic. The buying and selling of mutual fund schemes should be carefully tuned to your risk profile, investment objectives and financial goals. In financial planning, setting the right asset allocation and regularly rebalancing your portfolio are key areas that ensure your financial wellbeing.

This is why we strongly suggest that you avail of PersonalFN’s Mutual Fund Portfolio Review service. PersonalFN’s ethical and unbiased investment advisers will comprehensively review your mutual fund portfolio. Here you will get Buy / Sell / Hold recommendations on your existing portfolio, keeping in mind the five action points discussed in this article. The portfolio will be revamped based on your requirement and risk profile. We highly recommend that you opt in for it.

Wish you the best of health and wealth, always.

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