What should you keep in mind while Monitoring Portfolios?

An investor education & awareness initiative.

Monitoring your investments means periodically assessing how your investments have performed. This involves figuring out whether your investments have grown sufficiently to meet your short, medium and long-term goals. Here are some aspects you must consider while monitoring your investments:

- Investment objectives: The foremost requirement is that an investment should meet its designated goal. As an example, if you are saving to buy a house in 15 years, you should analyse if the returns from the investment made will be able to generate sufficient corpus to purchase the house.

- Risk levels: When you make an investment, you must assess whether the risk inherent in the investment matches with your risk profile. However, over time, your risk profile may change due to changes in your life situation; similarly, the risk inherent in the investment may change due to changes in business conditions, changes in the economy, etc. From time-to-time, you must re-evaluate whether the risk you are willing and able to take on are at the same level as the risk inherent in the investment, and re-adjust your portfolio accordingly.

- Returns: You should always compare the returns that an investment has given against:

- Inflation: If the investment gives returns below the rate of inflation, then you will lose capital as inflation eats away at the real value of money.

- Benchmark: You should assess whether the investment has out-performed the index (which is good), under-performed against the index (which is bad) or kept pace with the index (which is okay).

- Category average: You can compare investments against the average return given in the same category.

- Liquidity: : It is important to maintain sufficient liquidity in your portfolio for emergencies. A portion of your portfolio should consist of investments that can be easily terminated to generate capital for unforeseen events. Check your portfolio from time to time to ensure that there is a right balance of liquid assets.

So what steps do you need to take to maintain a portfolio that is in line with your investment objectives?

- Book profits and dispose of the laggards:It is better to dispose of investments that are under-performing consistently over an extended period of time. It is also important to book profits when your target return has been reached.

- Rebalance your portfolio: If your risk profile has changed or there is a change in your objectives, you should re-balance your portfolio accordingly.

- Consult your financial advisor: If you have some questions regarding your investments or you need help, you should contact your financial advisor.
Keep an eye out for certain imbalances and problems in your portfolio and take corrective steps if you notice:

- Sharp deterioration in performance: You should consider discarding investments that have seen sharp deterioration in performance.

- Concentration or excess diversification: In some portfolios, there is a concentration of certain sectors or certain types of funds. In this case, your aim should be to rebalance the portfolio. Excess of diversification can be a problem as well, as many investors end up with multiple mutual funds with similar portfolios. Since mutual funds are diversified by default, holding multiple funds of the same type leads to overlap. Consider rebalancing.

- Liquidity constraints: Some investors are locked-in to their investments for the long-term without considering liquidity. Make sure that you can cash in at least some of your investments for emergencies.

- Taxes: Taxation rules are dynamic, and investments that were once tax-friendly can become a liability, while others may become more advantageous. For instance, starting from April 01, 2023, fresh investments in funds with less than 35% of their corpus invested in domestic equity shares will no longer enjoy a 20% long-term capital gains tax rate with indexation benefits. Instead, all capital gains on such investments acquired on or after April 01, 2023, will be subject to taxation based on your income tax slab. Therefore, it is essential to stay updated on new tax rules and their potential impact on your portfolio.

- Nominees/beneficiaries: All your investments should have nominees and beneficiaries assigned so that your heirs have no problems in receiving proceeds in the event of your death.

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Key Takeaways

  • Your investment returns should be compared against inflation, benchmarks and category average.
  • Reassess your risk profile vis-à-vis risk inherent in the investments from time-to-time.
  • Make sure a portion of your investments can be encashed easily for emergencies.
  • Periodically re-evaluate your portfolio to ensure that it is in line with your investment objectives.

Disclaimer: All Mutual Fund investors have to go through a one-time KYC (Know Your Customer) process. Investors should deal only with Registered Mutual Funds (‘RMF’). For more info on KYC, RMF & procedure to lodge/redress complaints, visit This is an investor education & awareness initiative by DSP Mutual Fund.