Hi fellow Investors,
As discussed 2 weeks back (in our article - How many Mutual Funds should you have, an investor should not have more than 5-6 Mutual Funds in his/her portfolio. These should be restricted to 1 Mutual Fund scheme to invest in each Mutual Fund category based on your risk profile, goals, and other requirements. As a follow up to this, we told you that we shall tell you how to downsize/limit your portfolio to 5-6 Mutual Fund schemes.
The simplest way to do this is to first identify which Mutual Fund categories you need to invest in (based on your risk and goals) and identify the right schemes in each category (it is advisable to invest in schemes that are right for you and not look for the best schemes). This will give you your desired holding of Mutual Fund Schemes.
Once you have done that, it is important to take stock of mutual funds that you already have.
Make a list of all your investments in Mutual Funds. To do this, you can download your Consolidated Account Statement from CAMS Online. It will give you transaction wise details of all your mutual fund transactions provided you have used your existing email ID when doing the transactions. Otherwise, if you have an agent or use a platform for investing in mutual funds - you can ask them as well for a holding report.
Compare the existing holding of schemes with the list of desired holding schemes determined above.
SELL unwanted schemes
The way to downsize is to redeem the extra/unwanted schemes and invest the proceeds from the redemption into the desired mutual fund schemes. You can exit from some scheme and buy another scheme in the same category (hence, setting off your loss or gain). You will have to trim your portfolio to reduce it to 5-6 mutual fund schemes.
How should you decide what to sell?
Maintain your Asset Allocation
We always tell you to do this and this time around as well, it's the same solution. Your investments in various asset classes should be made to achieve the right allocation. Even with Mutual Funds, your split between Debt & Equity should be based on your asset allocation. You can read more on this here - https://financial.wealthcafe.in/how-should-you-invest-right-now/
% of your portfolio - Small value funds
You can choose to sell the schemes where the invested amount is low and they are only increasing the number of schemes you hold.
Analyze the performance of your invested funds and understand which are the funds you should have in your portfolio. Exit from risky funds and poor performing funds. This can be understood by checking the returns of your scheme with the underlying benchmark returns.
Currently, almost all your investments pre-march would be performing poorly, hence it is important for you to check funds past consistent performance and not just last 2 months' results.
Minimalism is the key to a cleaner and better portfolio as the reduced number of funds makes it easier for you to analyze your invested funds regularly and also, take a more informed decision with respect to your investments. Also, the cost of managing these funds is reduced.
Where you have just started investing, keep in mind that every time you want to invest more money, you need not invest that in a new mutual fund scheme. You can instead increase your SIP amounts in your existing schemes.
Consult an Advisor
Where you already have 15 - 20 Mutual Funds and are finding it difficult to select which ones to keep and which ones to let go, it is advisable to get the assistance of a financial advisor who will go through your risk profile and advise you exactly which mutual funds to hold and for how long. Where you need an advisor/financial planner for your specific financial needs, you can reach out to us at https://ria.wealthcafe.in/