The risk involved in Mutual Funds is inevitable. However, by making smart investments, you can ensure that the irregularities of the market do not pose adverse effects on your investments and your finances. Therefore, it is important to check the health of your Mutual Funds Portfolio from time to time.
The Health of the Portfolio refers to its ability to perform in tough market conditions. If your mutual funds provide you with great results even when the market is not performing well, then your mutual funds' portfolio is healthy. On the other hand, the portfolio's poor performance indicates poor health.
Why Checking the Health of Your Portfolio is Significant?
There are multiple reasons why you should regularly analyse the health of your mutual funds portfolio.
To understand the composition of your portfolio:
- There are various portfolio types, such as moderate, aggressive, etc. To completely understand your portfolio and its shortcomings and points, you need to focus on checking its health.
To carry out identification of risks:
- The main job of checking the health of your portfolio is to identify the risks involved in it. You can know about the impact of changes in the interest rate, investments with poor credit quality, and whether your investments are exposed to a particular class more than they should be.
Identify the causes of lowering returns:
- There are many reasons your returns can deteriorate, and assessing them is a part of checking the health of your portfolio. Some reasons include high exit loads, more payments made to the fund managers, etc.
To have access to more opportunities:
- You can improve the diversification of your portfolio and find new opportunities to control risks and consequently increase returns by keeping a check on the health of your portfolio.
A portfolio health check will help you identify and acknowledge the problems in your portfolio so that you can work upon those problems and mitigate risks so that your portfolio becomes better and yields more returns.
With the help of some easy steps, you can monitor and analyze the health of your mutual funds portfolio whenever you want.
Track your annualized total performance:
- You should track the figures and the annualized total performance to understand if your investments are healthy or not, and thus make decisions in the future based on the information.
Track the Dividend Yield:
- To get a full picture of your investments, you must track your dividend returns.
Review Asset Allocation:
- To make the most of your investments and understand the health of your portfolio, you should review the impact of your asset allocation, which helps you understand stock selection, exposure to certain sectors of industries, etc.
Benchmarking:
- Benchmarking helps you analyze your portfolio's performance compared to owning an Exchange Traded Fund. You should compare your portfolios against a market-tracking index ETF to ensure the best health of your mutual funds' portfolio.
If you want to ensure good health for your investments, you should make investments with the Mutual Funds and plans provided by HDFC Mutual Funds. We help you choose the right funds to build up the perfect portfolio while guaranteeing you a healthy portfolio and exciting returns.
