It’s important for investors amassing wealth to have proper asset allocation. and timely rebalance their mutual fund (MF) portfolios. The ‘invest-and-forget’ mentality may not work always for investors.
Why is rebalancing your MF portfolios important?
Rebalancing your MF portfolios is one of the key responsibilities to guarantee that your investments are in line with your financial objectives.
Radhika Gupta, the managing director and chief executive officer of Edelweiss Asset Management Company (AMC) has shared some takeaways from rebalancing her own mutual fund portfolio in a series of tweets.
Gupta said,”I do a once in a 5-year major relook at the funds and asset allocation in my portfolio. This is the time when I make big structural changes. Why 5 years? Goals, circumstances, and needs change over this period. It also gives me enough time to fairly evaluate managers.”
11 things MF investors can learn from Radhika Gupta.
1)Consistency
I much prefer the 4-star fund to the 5-star fund, metaphorically. While over a long period, all funds have done decently, some have seen more extreme good and bad performance (the 5-star fund).
2)Doing monthly SIPs has worked well
My investor performance has nearly always beaten fund performance because of SIPs, I am collecting units when markets fall and it works. Even absolute SIP performance is heartening – 14%+ in BAF categories and 18%+ in midcap categories.
3) Focus on the AMCs area of specialty
When I choose external AMCs, my number one criterion is trust in the team. That overrides everything, of course being from industry gives a lot of insight into this. I also focus on the AMCs area of specialty – midcap, value, etc – and allocate that scheme to the AMC.
4)AMC size doesn’t matter
I have had big and small, and small that have become medium AMCs. Scheme size matters hugely and I avoid schemes where size has ballooned especially in the small cap category despite how good performance has been.
5) Limiting schemes is important
I now have broken my approach into 6 categories, and in each I have 1-2 schemes making for a total of 10 funds. The categories are: Flexi/large and midcap, Midcap, Small cap, Asset allocation funds, Indo global funds (tax efficient), Pure global funds
6) Diversification
Diversification really is about getting different investment approaches and ideas that perform at different points in time.
7) Invest in active funds
I am still largely active fund biased, although I have added one passive fund. My mid cap small cap and BAF exposure is entirely active and I feel comfortable with that.
8) Expense ratio
Even though I am in the business, I am not obsessed with fees. In fact expense ratio isn’t a factor when I pick my funds. There have been more than 1 time when I picked a fund and paid 10 bps more because I was more comfortable with the manager/product. Troll me!
9) Conservative products
I have historically biased my asset allocation towards more conservative products but will not increasingly turn a little aggressive with some key goals (house) out of the way. We also have got a separate portfolio going for our son with the goal of his college education.
10) Top up your SIP
Another learning was it’s good to look at your SIP amounts again. With rising incomes, we often don’t top up our SIP. Try and target a post-tax savings amount and periodically review and try to increase what you can invest.
11) Avoid complex products
Lastly, one choice I made was to avoid complex products or closed-ended structures in my portfolio. Best decision ever. The easiness to invest and redeem in mutual funds is underrated
“Shared this advice because I thought some of the takeaways would be useful to a broader group. Of course always remember that personal finance is personal. Happy investing,” Gupta said.
National Head of Wealth at AUM Capital Market, Mukesh Kochar, emphasises the importance of rebalancing equity-debt allocation and adding IT-dedicated funds.
“As far as the mutual fund portfolio is concerned, we always rebalance equity debt allocation at such times. Due to the recent rally, the weightage of equity allocation increases automatically which we will trim down and add to the debt portfolio to rebalance. This is a regular phenomenon whenever the portfolio is substantially deviated from the original plan due to the return component. At the same time, we are adding some IT dedicated funds as we are finding that valuation is attractive there and risk reward is also in favour,” said Mukesh Kochar.
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Updated: 26 Jun 2023, 02:59 PM IST