How to manage your equity fund portfolio

As an equity investor, you have an option to either invest directly into the stock market or allow the professional mutual fund (MF) managers to manage your money via a variety of equity funds. Needless to say, if you are not familiar with the stock market and do not have the wherewithal to keep track of your equity portfolio, you should opt for MFs.

Here, too, MFs provide a simple way of investing in the market, but it isn't always easy. You have to make sure of certain things such as fund selection, that is, the mix of multi-, large-, mid-cap, thematic, sector and speciality funds. Besides, investing in these in the right proportion is critical to ensure that the portfolio suits your risk profile and requirements.

 

Once you invest, you would hope that funds in your portfolio always do well. In reality, however, some of these funds may slip or become inconsistent at some point of time. Although a situation like this can create panic, you need to put performance into proper perspective.

For example, if a fund loses ground in a falling market and falls in line with its benchmark index, it should not be much cause for concern.

That's because the stock market has a tendency to be volatile over the short and medium term.

On the other hand, if a fund goes down when its peers are giving positive returns, it should be taken as a warning signal. Remember, a skilled fund manager with a well-defined mandate can ensure that the fund remains among the front-runners, consistently.

Similarly, while analysing the consistency of a fund that invests in a particular segment of the market, such as a mid-cap fund, you must consider the level of volatility that the segment itself may have been witnessing.

If inconsistency in the performance becomes a regular feature, you should not hesitate to get rid of such a fund. Most investors suffer not only because of the wrong selection, but also because they continue to hold on to these funds for years. Don't ever make exiting a non-performing fund an emotional issue. At the same time, don't rush to make changes in the portfolio every now and then.

Another important aspect of equity fund investing is your time horizon. Although one should ideally be investing in these funds for the long-term to benefit from their true potential, many of us get tempted to make a quick buck. By doing so, we invariably expose ourselves to a higher degree of risk as compared to the normal risk level that can be attributed to equity as an asset class. To avoid a situation like this, you need to understand the role that equity can play in your portfolio.

Equity, of all the asset classes, provides the potential for the highest return over the long term. Hence, it can play a major role in your wealth-creation process.

The key, however, is to manage risk by diversifying your portfolio adequately, following a disciplined approach to investing and investing for a long term. By doing so, you can tide over the rough times in the stock market.

While it is practically impossible to predict a bull or a bear market, investing in both carries risks of varying degrees. Therefore, the right way for you to proceed would be to follow an asset-allocation model. You need to follow this, irrespective of the fact whether you are investing in a rising, falling or a volatile market.

The writer is CEO, Wiseinvest Advisors. The views expressed are personal