Investment experts are asking individual investors to use the booming stock market to get rid of dud stocks and mutual fund schemes in their portfolio. They are also advising investors to rebalance their portfolio to conform to their asset allocation plan, as the share of equity assets in portfolios would have swelled due to the rally in equities.
It is also a perfect occasion to book profits, they added in good measure. The S&P BSE Sensex touched all-time high of 21321 on Sunday during Muhurat Trading. "Many mutual fund investors do not keep track of the performance of their schemes. This is a good time to review the portfolio and get rid of schemes that have yielded poor returns vis-a-vis their counterparts from other fund houses," says Suresh Sadagopan, certified financial planner and founder, Ladder7 Financial Advisories. "You should consider booking profits and exiting some of your equity investments to adhere to your original asset allocation plan," he adds.
Raghvendra Nath, managing director, Ladderup Wealth Management, points out that retail investors tend to hold onto bad investments due to the fear of booking a loss, which prevents them from undertaking the task of portfolio review regularly. Those who have failed to review the portfolio should make the most of the current market surge to eliminate dud stocks and mutual funds, he says.
"If a stock or mutual fund scheme is not doing well, you should get rid of them after a review, instead of waiting for good times to come. For instance, if you had disposed of a bad stock, say, six months ago and replaced it with a performing stock, the latter would have yielded even better returns during this market rally," he explains. Similarly, if you feel your fund manager has been under-performing for a long time, you should sell off the units, irrespective of market conditions.
Experts says investors should evaluate returns from mutual fund schemes over one, three and five years before taking a final decision. "Comparing your fund's returns with its peers' over these three time periods will be an indicator of its utility value to your portfolio," says Harshvardhan Roongta, certified financial planner and CEO of Roongta Securities.
You need to exercise caution while making such comparisons, particularly in case of mutual funds. "Avoid apples-to-oranges comparison. For instance, in the recent times, mid-cap funds have underperformed severely, while largecaps have done reasonably well. Retail investors who own one largecap and one mid-cap fund tend to make the mistake of comparing the two and switching out of the latter.
Instead, they should look at the right indices for benchmarking. In this case, mid-cap should be benchmarked against mid-cap index and large-cap against Sensex or Nifty," adds Nath. Similarly, a comparison between funds in your portfolio bought over different time periods, too, will not be an accurate indicator.
Rather than comparing funds within your portfolio, assess their performance with respect to the category average, benchmark indices and time periods. In addition, find out whether the fund is adhering to its stated objective. "You can scan the reports sent to you and figure out whether the stocks in the portfolio match the objective. For instance, if an infrastructure fund is investing in banking stocks when your intention was to invest in capital goods companies, you may need to re-evaluate your decision to stick to the fund," says Roongta.
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