Identify the flaws in a mutual fund portfolio
Investors usually use an intermediary when they look towards mutual funds and often the directions given do not match the requirement. The investor should ask a few pertinent questions to get a clear picture about their position. Arnav Pandya reports.Updated: May 18, 2008, 21:28 IST
A lot of investors actually just churn their money from one mutual fund scheme to the other. These types of investors do not end up with the right kind of portfolio for their investments and therefore they have trouble achieving their objectives. Investors usually use an intermediary when they look towards mutual funds and often the directions given do not match the requirement. The investor should ask a few pertinent questions to get a clear picture about their position.
Movement of funds
There are several cases where the advisor asks the investors to keep shifting from one scheme to the other. This should normally not happen because the investor should be selecting good schemes that provide some capital appreciation over a long period of time. A mutual fund is not like a stock where the price can move 20-25 per cent in a day and hence one cannot keep changing the investment at very short intervals. If that happens then the investor is paying for the transactions in the form of various loads.
Composition of portfolio
Many investors hold a host of schemes in their mutual fund portfolio. Very often, these schemes are just new fund offerings that have hit the market. This shows that very little planning has gone into the entire composition of the portfolio but it is just selling of the new schemes that have been followed. There is a need to have a mixture of various kinds of schemes so that the mutual fund portfolio is constructed properly and is able to deliver according to expectations.
Fixed level for sale
There are times when the investor is told to book sales or profits the moment a certain level of return is reached. There is nothing wrong as far as booking profits is concerned but this should take place when the investment does not have much of potential left. If the investor is going to take the amount of profit and then invest it back into a similar mutual fund, it would be better if they kept it in the initial investment and give it a chance to grow.
Variety of schemes
A wide choice is available for investors and due to this reason they can select a wide variety of schemes that will give them the required target. If just one or two types of schemes are selected then it is time to question him about the missing part of the portfolio where a lot more can be done. Having a variety of schemes will ensure that the right balance is achieved in the process.