Stay Onboard with A Firm Grip

Hemant Rustagi
Chief Executive Officer, Wiseinvest Pvt Ltd.

One of the key aspects for you, as an investor, is reviewing performance of funds in the portfolio as it helps you understand whether your portfolio is doing the job for you or not. Simply put, portfolio review is an important activity and must get its due in your investment process.However, the process of doing so can be tricky as you have to tackle a number of aspects relating to measuring the performance of funds over time. Remember, monitoring the portfolio is an ongoing process and the key is to avoid either tweaking the portfolio in a hurry or remaining invested for years in the hope of an improved performance from funds performing poorly consistently.

Also, avoid looking at the NAVs of funds every day as it can make handling volatility in the market quite stressful. Considering that reviewing the performance is an ongoing exercise, you need to put performance in perspective and understand the reasons for non-performance. As an investor, you must know how to differentiate a fund manager’s poor performance from the stock market’s poor performance. Remember, in a falling market, a fund manager can’t be expected to give positive short-term returns. In fact, if the fall in NAV of the fund is lesser than the peer group, it amounts to outperformance.

Besides, reviewing fund performance in a haphazard manner can compel you to make some irrational investment decisions that could have a significant negative impact on your financial future. Therefore, you must follow the right process to do so. Here are some guidelines you need to remember while reviewing the performance of your portfolio:
n While analysing the performance of the portfolio, the focus should be on figuring out how the portfolio is performing from the viewpoint of your personal goals. Are you comfortable with the level of volatility that may have occurred keeping in view your short-term, medium- term and long-term goals? If your answer is in the negative, you must have a close look to ascertain if yourasset allocation requires any realignment.

Avoid looking at the NAVs of funds every day as it can make handling volatility in the market quite stressful

 • While the stock market tends to be volatile from time to time, different segments of the market i.e. large-cap, mid-cap and small-cap also perform differently at different times. As the tide shifts in favour of a particular segment, the performance of funds focusing on that segment improves dramatically. Therefore, making changes in the portfolio every now and then based on the short-term performance of a particular segment can backfire in the long term. The key is to focus on your allocation as that helps in earning returns commensurate to your risk profile.
 • Another important aspect is to compare the performance of the funds with their benchmarks as well as with that of other schemes in the same category over different time periods. If a fund is not keeping pace with its peer group for say 4-6 quarters, it makes sense to exit from it and move the money to another fund that deserves a look from long-term point of view. By doing so, you can enhance your chances of improving returns over time.
 • You must hold a fund long enough to evaluate its performance. Avoid making the mistake of either holding on to funds for too long or exiting in a hurry. Remember, a wrong decision can either expose you to the risk of missing out on good rallies or getting out too early, thus missing out on potential gains.
 • You must do a thorough analysis before making a decision to sell. Many investors err on the side of selling funds without giving them time to show what they can do. That’s why proper selection of funds becomes an important activity. If you select well at the start, you can avoid these situations occurring frequently.