Improve Your Portfolio Performance

Hemant Rustagi
Chief Executive Officer, Wiseinvest Pvt Ltd.

It is encouraging to see an increasing number of investors adopting the right investment approach that entails asset allocation and a goal-based investment process. Needless to say, an approach like this creates the right balance between risk and reward and also prepares investors for tackling the unpleasant reality of volatility in the stock market. While a good beginning is a job half done, it is crucial to keep investments on track to achieve your varied goals. Here are a few factors that can help you achieve this on a consistent basis.

To begin with, asset allocation and a goal-based investment process goes a long way in creating the groundwork for long-term investment success. This approach allows you to focus on capital safety while investing for the short term as well as on safety and growth for the medium term while staying ahead of inflation and investing for the long-term term. Once asset allocation sets the framework, the key is to choose the right investment options and follow the right strategy to benefit from the chosen asset classes. 

Investors often make the mistake of investing a significant part of their portfolio in a single mutual fund, having too many funds for a single investment goal, investing aggressively in risky funds like Small-Cap and sector and thematic funds as well as not having a defined time horizon while investing through SIP. Avoiding these mistakes ensures that there are no gaps in what you set out to achieve and what you achieve at the end of your time horizon.

Let’s analyse why it is not a good idea to have too many funds from a single fund house. One of the major benefits of investing in mutual funds is the availability of choices both in terms of types of funds and an opportunity to invest in different investment strategies and philosophies. When you invest a significant part of your portfolio in the schemes of a single fund house, you forfeit opportunities to benefit from the expertise of other fund managers. Besides, it is possible that the investment strategy and philosophy of a fund may not work during certain market conditions and investing a large part of the portfolio could result in under-performance. Then, there is an issue of overdiversification in the portfolio. It is important to remember that mutual fund themselves are a diversified investment vehicle. While having a variety of funds is important for different asset classes and time horizons, having too many funds for a single goal can make monitoring of the portfolio cumbersome. If chosen well, one can achieve higher level of diversification with a few funds. Considering that equity by itself is an aggressive asset class, investing heavily into aggressive fund categories can take you beyond your risk-taking capacity. 

While investing in equity funds is the key to stay ahead of inflation, it is equally important to have the right exposure to different market segments and avoid investing heavily into aggressive fund types like sector, thematic and small-cap funds. While these funds have the potential to deliver higher returns during certain phases, increased volatility can compel you to make haphazard changes in the portfolio that can impact your financial future. 

Having a defined time horizon is another aspect that prepares you for tackling market volatility. An asset class like equity requires time commitment to get the best out of it. Many investors make the mistake of not having a defined time horizon while initiating the process of investing through SIP. This is not the right approach as depressed markets can compel you to stop your SIPs. A defined time horizon enables you to continue the investment process irrespective of the market conditions.