Is your MF portfolio drifting? How to review it for stronger 2026 returns

A disciplined year-end review can help investors correct drift, cut weak funds, and enter 2026 with a cleaner, goal-aligned mutual fund portfolio

As 2026 approaches, financial planners say a year-end portfolio review is essential to keep your mutual fund investments aligned with your goals, risk appetite, and asset allocation. Market experts outline the signals to watch, the practical rebalancing steps to follow, and the mistakes that retail investors must avoid.

When should you review or rebalance?

Most investors wait for a sharp rally or correction before reviewing their holdings, but this is not ideal.

 

Nilesh D Naik, head of investment products at Share.Market (PhonePe Wealth), says investors should ideally review portfolios every quarter. According to him, if the actual asset allocation deviates significantly from the investor’s framework, realignment is needed. He notes that sustained underperformance, strategy changes, or even a change in the investment team are legitimate triggers for an exit. 

Swapnil Aggarwal, director at VSRK Capital, highlights changes in income, financial goals, risk appetite, or rising expense ratios as signals that deserve immediate attention. A portfolio also needs scrutiny when asset allocation drifts materially due to market movements, he adds.

 

Raghav Iyengar, chief executive officer of 360 ONE Asset Management, says a review becomes necessary when the portfolio no longer reflects the long-term goals it was created for. Persistent underperformance or funds misaligned with the investor’s time horizon are strong cues for a rebalance.  ALSO READ | Too many mutual funds in your portfolio? The sweet spot may surprise you

How rebalancing works in real life

Rebalancing can be done in multiple ways. Naik outlines two broad methods:

 

• Selling and buying to correct a major imbalance, while assessing the tax impact carefully.

 

• Incremental allocation through fresh SIPs or lump-sum investments into the underrepresented asset class. 

Aggarwal offers a practical example. If a targeted 60:40 equity-debt allocation drifts to 75:25 after a rally, an investor can direct all new investments into debt rather than selling equity. This restores balance gradually without triggering avoidable taxes.

 

Iyengar notes that restoring allocation should not interrupt long-term compounding. Investors can redirect new monthly flows or trim overweight positions in a tax-efficient manner.

How to decide what to trim, exit, or add

Experts agree that persistent underperformance for two to three years, strategy shifts, higher costs, and portfolio overlap are key reasons to exit. Naik also points to opportunities such as booking up to ~1.25 lakh in long-term capital gains or offsetting gains with available losses. Iyengar advises checking whether each fund still plays a useful role in the overall construct and says multi-asset funds can be valuable additions.

Common mistakes to avoid in 2026

Chasing the year’s top performers remains the biggest mistake, all three experts caution.

 

Naik warns against reacting to social media noise, while Aggarwal highlights over-churning, ignoring tax impact, and overlooking fund overlap. Iyengar adds that investors often exit after a weak quarter or jump into last year’s winners.

 

A disciplined review anchored in asset allocation, long-term goals, and risk appetite, rather than market buzz, remains the most effective way to keep your mutual fund portfolio on track for 2026.