It’s possible that you have a large portfolio with many schemes in it. You may have also entered in the same scheme either through a systematic investment plan (SIP) or through one-time investments done at several points in time. If you feel that a review of your portfolio is required, keep in mind the following.
Over-diversification or lack of it
One of the bigger fallouts of having a large portfolio is that you either end up with a large number of fund houses or with very few but many schemes within the same fund house. The latter is possible if you grow accustomed to one or few fund houses that come with a good track record. For instance, fund houses like HDFC Asset Management Co. Ltd, DSP BlackRock Investment Managers Ltd, ICICI Prudential Asset Management come with a number of schemes across its equity, balanced and debt schemes that have done well over the years. You may be tempted to invest with only a few fund houses in such cases, but it’s always better to diversify. If you are concentrated with too few fund houses, look for schemes in your portfolio that have almost identical objectives within the same fund house. Though both of them may be highly rated, it usually make sense to consolidate your investments into one.
Should you sell lemons?
Bad performing schemes ought to be sold as soon as you can, but sometimes it may make sense to hold on till the time is right. For instance, if it in an equity scheme, it is better to hold till you complete a year in it. Long-term capital gains tax from selling equity schemes is nil if you sell them after a year; if you sell within a year, you pay 15% short-term capital gains tax.
When comparing returns, look at time period
It is possible that you may have invested in the same scheme at different points in time. Your returns since the time you invested, therefore, from all such investments will be different. For instance, if you had invested in HDFC Equity Fund about two years back, you’d have lost a little less than 2% in value. But if you had invested in the same scheme three years, you’d have gained 11% compounded annualized by now.
Sectoral or thematic funds
Many investors are saddled with thematic funds such as infrastructure funds. If your agent is a bank, then there are chances that your portfolio also consists of international funds as bank distributors are known to recommend a lot of schemes that invest in foreign countries. To remove or keep them is a tricky question. The last three years have been harsh on the infrastructure sector as activity has virtually stopped in this area on account of the global slowdown. Though the sector has potential, when it will rebound is hard to predict. International funds are cyclical and, again, not meant for everyone. Sit with your agent and try and find out your scheme’s investment strategy. If the strategy sounds flawed, it may be time to cut your losses.