Retail investors often make equity investments with the aim of earning higher returns than their debt instruments and to beat inflation. However, their task does not end there; the bigger challenge is to monitor the investments made across market cycles.
Investors may be active in calculating their profits in a bull market, but they fail to take stock of their portfolio during a market meltdown. Monitoring one's portfolio is vital to achieve financial goals.
Do's and don'ts on a trading floor
Review: Start with evaluating your portfolio at periodical intervals. For instance, try to keep track of your fund's performance once a month and review the performance of individual funds in the portfolio and stocks at least once in every six months.
If any of your mutual fund schemes are underperforming for two consecutive half-years, it may be time to take a decisive call.
Weed out the underperformers and switch the money to better performing funds with a good track record. This can also be a fund that you already hold.
NCDs yielding good listing gains to retail investors
Monitoring is imperative in specific categories of funds. For instance, it is common for investors to apply for new funds (NFOs) and later fail to keep track of the performance.
NFOs require keen follow-up more than existing funds as there is no performance record to fall back upon. NFOs that significantly under-perform their peers/benchmark for over a year may need to be reviewed.
Another fund category that requires close monitoring is thematic funds as these schemes may have sudden bursts of out-performance followed by a prolonged down cycle.
It may, therefore, be essential to book profits in theme funds, after setting predetermined return targets. Investors need to note that theme funds pose the risk of dragging the overall portfolio returns if left unmonitored.
Dragging portfolio returns: To understand how an untenanted portfolio could dent overall returns, we analysed the performance of mutual fund schemes that have a track record of at least one year.
The net asset value (NAV) per unit of 21 (out of 300) open-end equity schemes is presently below their ‘at par' price of Rs 10. This list includes some of the offshore funds. Some of the schemes have lost as much as 45 per cent (absolute) over a two-year period.
Funds such as JM HI FI Fund, JM Small and Mid-Cap Fund are still quoting below par despite a two-year stint in the market.
It is to be noted that many funds that are currently quoting below par participated in the bull rally between September 2007 and January 2008 and generated a good 40 per cent plus in less than four months.
Do's and don'ts on a trading floor
The lesson here is that in a bull market most schemes generate returns but many slip sharply in a volatile market; reason why monitoring your portfolio is inevitable to preserve returns.
