Get Your Mutual Fund Portfolio Reviewed Right Now! Here’s why… (2024)

Regular health check-ups are crucial to your well-being. And though most people are reluctant at first, a check-up is extremely important because regular medical tests can help identify problems before they start.

Similarly, regular check-up of your financial health via a portfolio review is just as important to your financial well-being.

Reviewing your portfolio is even more important when mutual fund houses make changes in the fundamental attributes or the investment objective of the scheme.

This is pertinent, especially now, as fund houses are altering scheme names and categories to comply with the circular on Categorisation & Rationalisation of Mutual Fund Schemes issued by the regulator.

The Securities and Exchange Board of India (SEBI) defined 36 categories for mutual funds, with 10 categories for equity-oriented schemes and 16 categories under debt-oriented schemes. The remaining 10 scheme categories cover hybrid and solution-oriented schemes.

Following this, mutual fund houses in India are re-categorizing their mutual fund schemes, while some with fewer schemes have already done it.

Schemes are classified as per the average maturity of their holdings, the portfolio quality, and underlying security type.

PersonalFN is closely tracking the developments and have published all you need to know about the changes in mutual fund categorization here - Your Mutual Fund Scheme Renamed. All You Need To Know.

The guide also provides the list of schemes of 22 fund houses that have undergone or plan to effect a name change, a categorisation change and/or merger. We will update the list as and when more fund houses make public their scheme changes.

You can view the entire list here - .

The regulator has done its best to ensure that fund managers follow standard guidelines while creating portfolios. Hence, some changes in attributes may not match your initial investment objective and expectations that you had while investing in the scheme.

Given these changes, here are the top reasons you need to review your mutual fund portfolio right now!

1. A change in asset allocation

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Due to a re-categorisation or merger of a scheme, there could be a change in the asset allocation as well. In the case of balanced funds, the equity investment is now restricted to 60%.

A re-categorisation to sub-asset classes too, will warrant a relook. Under equity schemes, a re-categorisation from multi-cap to mid-cap, as in the case of Reliance Growth, influences the overall asset allocation of your goals.

For example, as per your investment goals, you have invested 30% each in large-cap, multi-cap and mid-cap funds, and the remaining 10% in a balanced fund. Now if the multi-cap fund will henceforth be a mid-cap fund, it would mean about 60% of your portfolio is now invested in mid-caps. This is contrary to your investment plan. Hence, there is a need to alter your investment strategy.

2. A change in risk

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A change in the investment pattern, as in the point above, will also alter the risk profile of the scheme. For a balanced scheme with a lower equity allocation, the volatility in returns will now be lower. Similarly, if the equity allocation of a hybrid scheme increases or if the scheme moves from a large-cap to large-and mid-cap or a multi-cap to mid-cap, the risk or volatility of the scheme will increase.

As an investor, you need to understand your tolerance to risk. This boils down to the suitability of the new scheme to your risk profile and investment goals. If the fund management is competent and you do not mind the additional risk, you may continue to hold on to the scheme. However, if you are risk-averse, you will need to look for other alternatives.

3. A change in expected returns

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When planning towards financial goals, how much you need to save and invest depends on certain return projections. If you plan to invest in high-risk mid-cap funds, you will have a higher return expectation of say 14%-15% over the long term. However, if you invest in large-caps, your growth rate considered will be lower at around 10%-12%. The difference may look like a few percentage points, but when compounded over the long term, it makes a huge difference.

Here again, if a scheme's fund management is good, and you do not mind a change in asset allocation and risk, it will be necessary to review your portfolio to understand whether you are investing adequately as per the new investment attributes of the scheme.

4. A change in investment style

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There are different investment styles and strategies that can alter the performance of a fund. If you have invested in an opportunities-styled fund, the basic objective of the scheme is to take advantage of the anomalies in certain set of sectors.

As per the new classification, Opportunities-style funds as a category do not exist. Currently, there are only Contra Funds, Value Funds, Dividend Yield Funds, and Focussed Funds that cover different investment styles.

Thus, a change in investment style can influence the performance of the fund, which can be both positive or negative. If your fund undergoes a change in investment style, asses how this would impact the performance.

However, if you are unsure and the fund management looks promising, hold on to your investment and review the performance of the scheme after six months.

5. A change in portfolio quality

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Under debt schemes, there are as many as 16 categories. So a Corporate Bond Fund will now invest in the highest rated securities, while a Credit Risk Fund will primarily invest in instruments rated below AA+ or equivalent. As per the average maturity, we now have Short Duration Fund, Medium Duration Fund, Long Duration Fund, etc.

Given the number of categories, the reclassification of your debt scheme may result in a change in asset allocation and even the portfolio quality. Hence, you will need to review the impact of such changes in your fixed income portfolio.

Short-term pain, for long-term gains

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The regulators new classification of mutual funds is giving a tough time to asset managers and some inconvenience to investors as well. However, the standardisation of mutual fund categories was much need.

While mutual fund scheme names such as contra funds were overhyped, others were purely misleading. In terms of investment style, some schemes practiced completely different. The scheme name was purely superficial.

We are glad that SEBI took a step to curb this practice.

It may be a little inconvenient for you, as an investor, but the pain will be short lived.

The new categorisation will make understanding mutual funds simpler. As the new rule states, every mutual fund to have only one scheme under each category, it will make it easier to pick the right fund under each category.

If you are confused about your mutual investment strategy due to these changes, do contact your mutual fund advisor or investment counsellor to help you decide on the holdings in your mutual fund portfolio.

P.S. – I strongly suggest that you avail of PersonalFN's Mutual Fund Portfolio Review service. PersonalFN's ethical and unbiased investment advisers will comprehensively review your mutual fund portfolio. Here you will get Buy / Sell / Hold recommendations on your existing portfolio, keeping in mind the five points discussed in this article. The portfolio will be revamped based on your requirement and risk profile.Don't delay your investment health checkup, opt for it now and avail of exclusive discounts. Subscribe Here.

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