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    When should you make changes in your mutual fund portfolio?


    A combination of scheme categorisation, economic downturn, and market downturn, coupled with negative news on the NBFC sector and couple of frauds, has created mayhem, in the market which led to underperformance of many mutual fund schemes.

    ET Online
    By Dilshad Billiomoria

    The markets have been volatile in the last two years. All indices are in the negative zone or have offered lower single-digits returns in this period (See the chart below). However, many investors think they are making poor returns because their advisor failed to pick up the right investments. Some others believe that the advisor is hiding the best investment solution from them.
    BSE Sensex Index
    BSE Mid cap Index
    BSE Large Cap Index
    S&P BSE 250 Large and Midcap Index
    S&P BSE 200 Index

    The truth is, numbers do not lie. We are in for a slowdown, globally as well as in India.

    The government has tried several measures to boost the economy. However, none of them worked so far. The economy is in an almost recessionary phase. There is a huge clean up happening on bad debt, corporate governance, process mechanisms and red-tapism in the country. If the clean-up process continues, it would be good for the country.

    Due to large NPAs there is consolidation of banks in the public sector, and low level of confidence in the economy. Banks are too afraid to lend. The purchasing power of an individual has reduced and there is over supply of inventory chasing low demand. Stock pile- up is too much, and despite discounts, sales are not happening.

    Until the GDP numbers pick up, corporate earnings are back, no amount of liquidity infusion by the government is likely to boost the economic growth. The economy is in a slowdown and it will take a natural cycle of recovery to get back on track.

    However, none of these factors should force an investor to make changes in their mutual fund portfolios. Some factors that an investor must consider while deciding to change the portfolio are:

    Scheme categorisation
    In October 2017, Sebi announced the need for a clear investment strategy, objective, asset allocation in mutual fund schemes to protect the interest of mutual fund investors. Further, there was huge duplication of schemes within the same mutual fund company, leading to duplication of investment objectives across schemes and not a clear mandate for investing.

    Investors (and advisors too!) were getting overwhelmed by the number of schemes and fuzzy objectives being followed between one scheme and another.

    With the need for a clear objective, scheme mandate and no duplication of schemes in fund houses, there was eight months given to fund managers to make changes to the portfolio. This led to rampant sale of some stocks and changes in the ways some funds were to be managed, which clearly affected the performance of many schemes. It also led to the need to have a re-look at investor portfolios, objectives and therefore mandate a sell or change over in a portfolio.

    Fund’s underperformance vs peers
    A combination of scheme categorisation, economic downturn, and market downturn, coupled with negative news on the NBFC sector and couple of frauds, has created mayhem, in the market which led to underperformance of many mutual fund schemes.

    It is important to consult your financial advisor to be clear if a scheme’s underperformance is because of poor fund management or poor underlying benchmark, which is causing the pain and negative returns.

    If the reason is the former, a clear low-cost exit strategy should be worked out. If not, stick to the long-term mandate of investing and do not be swayed by interim vagaries.

    Redemption needs
    Sometimes, an investor genuinely needs to exit an investment, due to an emergency or change in goals or change in life circumstances like a death in the family or a marriage or a divorce which necessarily requires splitting of assets and change in the course planned initially by the advisor. Again, if this decision is well planned for, by the advisor by crafting a financial plan to meet short medium and long-term goals and building an emergency fund to meet the uncertainty, the need for a sudden exit would not cost the investor so much. Careful Planning is the panacea for this scenario.

    Change in goals
    The human mind is unique and thrives on irrationality. An investment in an equity fund, which was meant for retirement, may be suddenly used for the purchase of a property - at a good location or a good price (so they say!)

    The objective and time horizon which the advisor had initially advised the investment is altered and there is a mismatch between the investment objective, time horizon and need. This leads to a change in the investment recommendations and the portfolio.

    This hurts the advisor the most, since the carefully crafted financial plan is thrown out of the window in a jiffy, and sometimes at a loss, just to fulfil a new fancy of the investor, without considering the primary or long-term stated goals.

    What Should Investors do?

    Keep goals as the end target
    When a financial plan is crafted; there are discussions on short-, medium-, and long-term goals. It needs objectives and the advisor plans the cash flows, budget and investment options to the dot to ensure the best solution is offered to the investor, optimally using the resources, time and market volatility to the investors benefit.

    A couple of months of market slowdown should not change the grand plan created by the advisor covering 20- 30 years of your life span.

    Maintain strategic asset allocation
    Strategic asset allocation focuses on suggesting investment solutions that cover all time horizons, asset classes that are negatively co- related and well diversified. If the objective of strategic asset allocation is met, an investor turns out mature.

    Just as a fruit should not be plucked early to reap the benefits of its sweetness, so should an investment be held for the matched risk and time horizon to make the sweetness apt.

    Tactical asset allocation should only be used when the mess looks unsolvable in the next 2- 3 years.

    Continual review of goals, asset allocation and portfolio is the onus of the advisor and a good one will do it for you- regardless. So, stay the course because 'Investments Sahi Hai'.

    (Dilshad Billimoria is the founder of Dilzer Consultants, a financial planning firm based in Bangaluru)
    (Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of

    2 Comments on this Story

    Rajeev Doshi307 days ago
    Hi!Dilshad You are good with your work and idea.Nicely explained the physiology of an Investor Nice artical.
    Rajeev Doshi307 days ago
    Dilshad you are good with the your work and idea.
    Nicely explained the psychologie of an Invested. Nice article.
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