If you wonder that while the markets are at All time highs but your portfolio is not then Reviewing your Investment Portfolio is a key first step in correcting this.

Investors need to diversify their holdings in order to match risk to their level of risk tolerance and at the same time reach their financial objectives with the help of a well-structured portfolio. Your job actually doesn’t finish there, though. Making a portfolio is only one aspect of the narrative. Creating a system for routinely assessing the portfolio and making modifications as needed is more difficult and needs discipline

 One of the most important aspects of money management is reviewing your investment portfolio. Considering that if ignored, your investments may swiftly stray from what you had planned to do with them. What exactly is this review, and why should you do one as an investor? All of these questions are answered in this article.

What exactly is a portfolio review?

An investment portfolio review is an examination of your investment portfolio to determine whether it is still aligning with your financial goals and risk appetite – both of which tend to change during different phases of an investors journey.  Tax planning also plays a key role here.  The goal of this tool is to assist you in meeting a critical need of portfolio maintenance: staying with good items while weeding out undesirable ones.

Some of these questions can help MF investors understand why they need to do a portfolio review.

Is your portfolio diversified correctly ?

Ideally an investment journey begins with Asset Allocation  – to decide the right mix of investments to Equities MFs, NCDs, Bonds, Gold, Long term Fixed Income Schemes, REITs etc. At every stage the portfolio diversification needs to be in sync with evolving goals.  Some important questions one needs to re-assess  are:

1. How do I manage my EMIs and SIP Investments
2. How much retirement corpus is needed and by when
3. Big life events and what are the predictable major cash outflows – like say own marriage, buying house, children education,  children education, etc
4. What is the appropriate proportion of investment in Equity MFs and further category wise like Large Cap Mid/Small Cap, Hybrid, International FoF, etc.
5. How much Fixed Income is needed at future stages
6. What are my Insurance needs
7. Do I need to invest in gold and what are the objectives

Most of the above are interdependent factors and it is important to realise that each individuals needs are unique. All of these circumstances necessitate an examination of your portfolio. You must assess your overexposure and decide whether to reduce or reallocate your resources properly.

Is there an underperforming scheme in your portfolio?

Markets behave and perform accordingly to cycles and themes which generally last for few quarters to few years. The individual MF schemes performance depends to the stock selection criteria an investment philosophy of the Fund Manger and Fund house.  Some illustrative investment themes followed by Fund houses could be Value,  Emerging themes like Manufacturing, Defence, Industrials , Quantitative techniques, etc. As a result of market cycles some schemes outperform the benchmarks while others underperform.  It is possible that you have a regularly underperforming mutual fund scheme in your portfolio. A portfolio review assists you in identifying schemes that have not performed well consistently across cycles or have exposed you to excessive risk to earn same unit of returns (Risk Adjusted Returns) and replacing them with mutual fund schemes that generate higher risk-adjusted returns while achieving your financial objectives.

Is your portfolio tax-efficiently optimised?

Tax planning is an essential component of the investment planning process. An assessment of your portfolio may reveal some potential strategies to which can help in optimizing  your overall tax burden. For example, you may not be selecting the ideal investing strategy based on the tax treatment of individual stocks. Many private investors are also ignorant of the advantages of using tax losses to decrease the realisation of taxable gains.

TO conclude, whatever steps you take, do not let emotions influence your decisions. Make an investment policy statement that includes principles that you are confident you will follow in the long run. Only then will your entire effort be rewarded.

Remember to do a portfolio review on a periodic basis (every 1-2 years)  to ensure your investments remain aligned with your goals and adjust to changing market conditions. As the saying goes ‘when it comes to investing there is no such thing as a one-size –fits all solution’