Why you should periodically review and rebalance your portfolio

Written on Monday, November 16, 2015
By Anjaneya Gautam- Sr. VP, Mutual Funds, Bajaj Capital Ltd.

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We always recommend our investor to periodically review their portfolio, preferably once or twice a year. There are several reasons behind this necessary recommendation. Don't think your work is done after you make an investment. Rather, it may have just begun. You need to monitor and review your investments and take corrective measures if they go off the track.


Review and Rebalance is a necessity part of your investment journey. Here are some of the reasons and benefits:


Change in Financial Goals/Personal Requirements: We all require money to fulfill our personal goals and depending on the goal we select our investment vehicle. When your investment portfolio is in sync with the financial goal, you have a better prospect of realizing goals. Let’s say you wanted to buy a 2 bedroom house in 2020 and started investing in mutual fund SIP. After few years of investment you decided to ask your aging parents to shift with you. In this case, you need a house which has 3 bedrooms. Now your goal is not the same, so you would need to change your investment strategy. If you continue with the same strategy then in 2020 you may not be able to buy a house.


Better returns on your investment: One can make better returns by reviewing the portfolio regularly for any new opportunity in the markets and rebalancing accordingly. If you have a fund which is constantly non-performing, it needs to excluded and replaced with better performing funds available in market.


Avoid unwanted surprises: Markets are too volatile these days and one need to closely watch the movement and track every development. While regular monitoring is a tedious task for investors but it can save you from unwanted surprises.


Changing Markets: Due to US market meltdown in 2008, many advisors, suggested putting money in equity markets for the long-term, since shares were trading at attractive valuations as a result of this many investors benefitted after 4-5 years.


Change in Company’s Fundamentals: Let’s say you invested in a company through shares or company fixed deposits. The invested company manufactures glass products but due to some shortage of raw products entire industry is facing loss. The shortage was predicted and reported in news but you didn’t monitor it. If you would have kept yourself updated with industry developments, it could have saved you from incurring loss.


Change in government policies: Policies framed by the government are deciding factors for the business environment around us. One needs to periodically review and take actions if required. For example, you invested in bank FD at an interest rate of 8% per annum. After 6 months, due to change in some monetary policy by RBI, interest rates are reduced to 6% because of which you will now significantly less returns on your investment. You could have earned better return by investing in some other product.


It is very difficult for an investor with limited knowledge of market to continuously monitor all the new events happening in the market. So, one should take service of an experienced financial planner and should interact with him, at least once every quarter.


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