How to clean up your cluttered mutual fund portfolio?

Every successful investor knows that identifying a good investment is not the only required skill for investors to earn high returns. Portfolio management also is an essential part of investing. The six tips for investment analysis and portfolio management mentioned in this article will help you declutter your mutual fund investment portfolio.

Align your investments with your financial goals

The first step towards decluttering your portfolio is knowing your financial goals. You must note down your financial goals and keep revisiting them repeatedly to rebalance your portfolio accordingly if necessary. Your analysis of an investment before investing must always be in terms of how it serves your larger financial goal.

Weed out the underperforming investments

Identifying an underperforming equity mutual fund forms a critical part of portfolio management. In order to identify an underperforming mutual fund in your investment portfolio, you must analyse its performance in the past two to three years and compare it with other funds that belong to the same category.

Comparing an underperforming mutual fund with a fund belonging to a different category will not provide you with the required information. Similarly, the investment horizon of the two funds must be the same for an optimal rebalancing.

Avoid investing in multiple thematic mutual funds

If your investment portfolio has many sectoral mutual funds belonging only to a particular sector, you must opt out of a few. The outperformance of a sectoral fund changes depending on short-term trends and wanes once these trends end.

Identify duplicate investments and remove them

Let us understand duplicate investments with an investment portfolio’s example. If a person A’s investment portfolio has many small cap funds in it – and is therefore highly risky – A can declutter it by identifying similar investments. You must thus identify duplicate investments and remove them while rebalancing your portfolio.

Practise portfolio rebalancing

The final and most crucial step is carrying out a rebalancing of your portfolio. Sometimes, despite your mutual fund investments being fewer in number and in line with your larger investment goal, your portfolio does not offer the intended returns. The most optimal solution in such cases is rebalancing your portfolio by exiting from certain underperforming investments.

Analyse the capital gains earned

Check whether you must pay an exit load before redeeming your fund. Always maintain a reserve fund to cater to financial emergencies before redeeming your mutual fund units.

Of the six tips mentioned in this article, practicing a rebalancing of your portfolio is the most critical in developing a foresight regarding your equity or hybrid fund investments. The first four tips help you rebalance your portfolio better by helping you identify redundant and underperforming investments. To efficiently declutter your investments, you must rebalance your portfolio annually.

Comments are closed.