Achieve your goals by managing the portfolio efficiently by HDFC Bank

Equity funds, if selected in the right manner and in the right proportion, have the ability to play an important role in achieving most long-term objectives of investors in different segments. Before you take a decision to invest in equity funds, it is important to assess your risk tolerance. It helps to understand different categories of overall risk tolerance i.e. conservative, moderate or aggressive. While a conservative investor will accept lower returns to minimise price volatility, a moderate investor would be all right with greater price volatility than conservative risk tolerances to pursue higher returns. An aggressive investor wouldn’t mind large swings in the NAVs to seek the highest returns.
While it is true that diversification helps in earning better returns with a lower level of fluctuations, it becomes counter productive when one has too many funds in the portfolio. To determine the right level of diversification, one has to consider factors like size of the portfolio, type of funds and allocation to different asset classes. Therefore, it is possible that a portfolio having 5 schemes may be adequately diversified whereas another one with 10 schemes may have very little diversification. To have a well-balanced equity portfolio, it is important to have the right level of exposure to different segments of the equity market like large cap, mid-cap and small cap. As an equity fund investor, you need to understand that volatility is an integral part of the stock market. However, if you remain focused on the long-term objectives and follow a disciplined approach to investing, you can not only handle volatility properly but also turn it to your advantage.
To analyse performance, one should consider returns as well as the risk taken to achieve those returns. Besides, consistency in terms of performance as well as portfolio selection is another factor that should play an important part while analysing the performance. Therefore, if an investment in a mutual fund scheme takes you past your risk tolerance while providing you decent returns, it cannot always be termed as good performance. You need to assess as to how much risk did the fund manger subject you to, and did he give you an adequate reward for taking that risk. Besides, you also need to consider whether own risk profile allows you to accept the revised level of risk.
There is no standard formula to determine the right time to sell an investment in mutual fund or for that matter any investment. You may consider selling a fund when your investment plan calls for a sale. You need to hold a fund long enough to evaluate its performance over a complete market cycle i.e. around three years or so. It is important to do a thorough analysis before taking a decision to sell. You should consider coming out of a fund if its performance has consistently lagged its peers for a period of one year or so. It doesn’t make sense to hold a fund when it no longer meets your needs. If you have made a proper selection, you would generally be required to make changes only if the fund changes its objective or investment style, or if your needs change.
It is always a good idea to review your portfolio periodically. While reviewing the portfolio, you must consider the following:
How is your portfolio performing from the viewpoint of your personal goals? Are you comfortable with the price fluctuations that may have occurred keeping in view your short term, medium term and long-term goals?
How are your investments performing compared with others in the same category? It is important as for example, a 15% growth in your fund may look great, but not if the average returns given by other funds in the same category is 25 percent. However, too much emphasis shouldn’t be put on the short-term performance.

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