When it comes to investments, mutual funds are quite popular among investors. The reasons are also simple enough to understand. Mutual funds are professionally managed funds which diversify the risks while at the same time providing market-linked returns. Moreover, mutual funds come in different variants to suit the different investment strategies of investors and are, therefore, suitable for every investment need. Almost every investor, in today’s time, has invested a portion of his/her savings in a mutual fund scheme. But are such investments regularly monitored?
Most investors tend to invest and forget. They don’t monitor, track or rebalance their portfolios periodically. This is a mistake. Times change and so do your circumstances. These changed circumstances might need a change in your mutual fund investments and so shuffling your portfolio becomes important. Here are some circumstances wherein reshuffling of your mutual fund portfolio proves beneficial –
- When your financial goals change
Financial goals depend on your life stage. When you are young and married, your goals might be to buy a car or a home. After you have children, you start planning for their higher education and marriage. As you enter your 40s, retirement planning becomes important to accumulate a substantial retirement corpus. Your financial goals, therefore, change over time. Investments are primarily done to meet these goals. So, you should check whether your mutual fund portfolio is aligned with your goals or not. If the goals have changed, the portfolio would need readjustment to the new goals and so reshuffling would become quintessential.
- When the invested funds are not performing
While mutual funds give good returns, sometimes, the fund might not perform well. Your investment might give you negative returns or not perform as well as other funds in its category. Holding on to non-performing funds is a bad idea as the opportunity costs are high. You should, instead, cut your losses and switch your investment to another, more profitable fund scheme. This change can be done only when you reshuffle.
- For saving tax
Did you know that there are mutual fund schemes which help in saving tax? Many investors might not know this fact and even if they do, they might not utilize the full tax-saving potential of ELSS mutual fund schemes. Thus, to save the maximum possible tax you might need to allocate a higher proportion of your investments to ELSS schemes. This increase in investment can be done by switching from one mutual fund scheme to ELSS scheme or by increasing your investments. Whatever you opt to do you need to reshuffle your portfolio to make it profitable in terms of tax saving.
- To increase your investment
If you want to increase your investment to capitalize on a bullish market or to simply contribute more towards your financial goals, you should first judge the performance of your existing funds. Thereafter, you can increase your investment into the same scheme or into another scheme which is giving good returns. Moreover, which increases your investment, your risk appetite should be kept in mind so that your investments suit your risk profile.
- For cutting down on market loss
The stock market is volatile. While it might be performing well consistently over a period of time, a crash can come unexpectedly. In times of high volatility, it is always advised to switch to debt funds for protecting the returns earned. Similarly, when the markets correct themselves, it is time to move out of debt and invest in equity. This switching, from equity to debt and vice-versa, constitutes reshuffling and helps investors book their profits and minimize losses.
So, given these reasons, reshuffling of your mutual fund portfolio becomes necessary. It helps you create sufficient funds for your financial goals, save tax and also earn the maximum possible returns on your investments. So, be an informed investor. Don’t invest and forget. Monitor your mutual fund investments over time and reshuffle if required. Also, educate your clients about the pros of reshuffling their investments so that they can too gain the benefits of such reshuffling.
