Importance of Portfolio review

While investing for any specific goal, we always assume some rate of return from the investment based on some rationale. Actual return may vary from time to time from the assumed return, so it becomes very important to check whether we are getting that return or not. We also need to check how various asset classes and schemes are performing in our portfolio. This exercise is known as review and it should be done on periodic bases. Ideally once in a year, you must review your portfolio.

Reviewing doesn’t necessarily mean frequent buying and selling based on performance. The return which we assume is for the CAGR return for the entire period of investment and need not to be equal to the assumed CAGR every year.

How to review your mutual fund schemes:

You can review the performance of your scheme and compare it with the performance of the benchmark. Apart from the benchmark, you can also compare it with peer group performance.

The performance of a good scheme also may lag at some times, so short term performance should not be given too much of weight while doing the review of the portfolio. Rather than short term performance, you must consider long term return and consistency in performance.

Apart from the return you also need to compare your portfolio on other parameters like risk, risk adjusted return and quality of portfolio while reviewing the scheme.

If the scheme underperforms on all the above parameters you should exit the same and invest in some other scheme.

But, remember reviewing doesn’t necessarily mean buying and selling every time while you review. The decision of exiting should not be based on short term underperformance noticed during the review. You need to adopt a holistic approach of reviewing the scheme by taking into consideration of other important parameters also apart from short term return.

Once you know where you are going by setting appropriate investment objectives, your portfolio review will help you reach your destination. How? By identifying problems and mistakes that you can correct mid-course. Much like a pilot, your job is to stay on course so that you can reach your destination safely and in a timely manner.

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Why you should stop looking at "Past Performance"

Have you ever got stuck up in traffic? I am sure you have. Just imagine your car is  new brand with a powerful engine, but unable to move an inch because of heavy traffic. And you get what? Frustrated! What happens when you cannot move but the smaller cars in lane next to you are moving faster than you because that lane has lesser traffic than the one in which you are driving. More Frustration! Right?

As a human being, it is obvious that you would have a strong urge to change the lane and move to the faster lane. And using your driving skills you change the lane. The moment later the lane which you left starts moving and the new lane in which you entered stops moving due to traffic. Now what? Height of frustration!

If there is a smile on your face while reading this, it means you have already have experienced it, probably not just once but more than once you have changed the lane and mostly reached the height of frustration.

Not just driving whenever in our life when we see someone is moving faster than us we try to change the course and find ourselves caught in the trap and then feel like we should have stayed in our lane.

Changing Mutual Fund scheme based on Past Performance

So is the case with Mutual Fund schemes. Most investors after investing in mutual fund schemes start comparing the return of their schemes with that of other mutual fund schemes. And many a time we change the mutual fund schemes and switch our money to other better performing mutual fund schemes in the recent past. And what happens next?

In recent times, Past Performance has become a major criteria of the mutual fund selection system. Investing based on recent past performance is as risky as driving a car by looking only into rear view mirror. While driving, rear view mirror is useful but more than rear view it is your front view that is more important for smooth and safe journey.

Past track record definitely helps in understanding the quality of the scheme and the ability of the management team but recent past performance is not the guarantee for the future.

What else matters while selecting a scheme?

Apart from Recent past performance, one should look at the consistency of return which can be derived from rolling return analysis for various periods, which requires a lot of data crunching rather than just finding out the past one year return.

One should also look at how the fund has performed during the best and worst period in past compared to its benchmark and category return.

You also cannot avoid looking at risk parameters. If some fund is generating superior return then it is also necessary to check at what cost. How much risk or volatility is it adding to the portfolio.

Choosing a fund from a basket of hundreds of funds requires lots of data, analytical skills, education and experience. One can do it by own but it is very risky. It is always advisable to take the help of qualified professionals for building a quality portfolio and stick to it with discipline.

Frequently changing lanes rarely helps, in driving or investing.

Happy Investing!

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Power of Compounding

If you want to go around the earth and start with 100 metres on first day and double the distance every day, How long do you think it will take?

1 year?

10 Year?

Let’s find out, within 19 days you would have covered 39,321  Kilometers, while the equatorial circumference of Earth is about 40,075 km. you would have travelled around the world in less than 20 Days.

But, What if you stop after 10 days? You would have hardly covered a little less than 77 km.

This is the power of compounding. Power of compounding can help you to create a great wealth as well.

How to leverage the power of compounding for maximum benefit to create a wealth!

Start Early & Invest Regularly

Key ingredient to avail the benefit of power of compounding is TIME. You need to keep investing regularly for long term. The sooner you start investing in your life, more wealth you will be able to create.

For Example,

Nisha invests 5000 rupees every month since the age of 25, while Nilesh invest 7000 rupees every month since the age of 35. Both of them kept investing till the age of 60 years with the objective of creating a corpus of retirement.

By the age of 60 both would have invested 21 Lac rupees. Assuming a return of 12%, How much wealth both of them would have created for their retirement?

Nisha will accumulate 2.75 Crore rupees, while Nilesh will get only 1.19 Cr rupees, which is 59% lesser than Nisha’s corpus.

This is why starting early is important.


"I fear not the man who has practiced 10,000 kicks once, but I fear the man who has practiced one kick 10,000 times.” Bruce Lee

One requires a lot of discipline in doing the same things again and again for long term, though it is the most proven method to create a great result in any area.

To avail the benefit of power of compounding the biggest challenge is to keep investing every month with discipline. And as a human being, most of us lack discipline, when it comes to follow the same routine in the absence of instant gratification. For creating wealth in long term, one needs a lot of discipline to start early and keep investing regularly.


Start a SIP (systematic investment plan) in Equity Mutual Fund for the long term to automate the process of investing. You need to exercise your willpower just once to decide the amount and tenure to start your SIP. The biggest benefit of investing in mutual funds through SIP is that it helps you in investing with discipline regularly. You need not do paperwork or pay every month manually. This automation makes this long-term powerful process of wealth creation easier for you.

So remember, to avail of the power of compounding starting early and remaining invested for the long term is the Key.

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Understanding Asset Allocation

As the classic proverb says, ’Don’t put all eggs in one basket, Investors also must diversify his/her portfolio into different asset classes. Why? The reason is very obvious – to reduce the risk.

There are mainly 5 asset classes, namely; Equity, Debt, commodity, real estate, and cash. One must allocate his/her savings into different asset classes based on the various parameters and their own risk appetite. Dividing your investment into different asset classes based on different parameters is called asset allocation.

Considering the ease of investing and liquidating, we shall focus on two asset classes – Equity & Debt, to understand the process of asset allocation.

Deciding the right Asset Allocation Mix:

One of the most important criteria while selecting the asset class is the time horizon.

  • Short Term - If you are looking to invest for less than 3 years, your portfolio should consist of mainly Debt investment as equity is very volatile and market risk is higher in short term.
  • Medium Term - If you are looking to invest for a  period of 3 to 5 years, your portfolio should be a mix of equity and debt both.
  • Long Term - In case of investment for longer than 5 years, you can invest more into equity. Equity as an asset class is lesser volatile in long term.

Rebalancing Asset Allocation:

The investment horizon keeps on changing over a period of time. So as the years passed by, asset allocation needs to be re-adjusted based on the remaining number of years till you need to withdraw. So for example, if you are going to need money in the year 2027, you must start shifting money gradually from equity to debt by the year 2024.

Other important Parameters:

Risk appetite, the required rate of return to achieve your financial goals, tax implications, etc. are other parameters that are also crucial while deciding the right asset allocation mix.

One must be able to control GREED in a bull market and FEAR in a bear market to ensure the right asset allocation mix in the portfolio. One must be focused and disciplined to save from the emotional decisions which might deviate himself/herself from the asset allocation.

“Most important key to successful Investing can be summed up in just two words Asset-Allocation.” Michael LeBoeuf

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Understanding Return


Understanding Return

Calculating return would have been easier if we had been investing exactly for one year. But that doesn’t happen in the practical world. Investment is normally done in a staggered manner and each investment is not kept for the same period of time. Withdrawal also might happen over a period of time.

To compare the return from various investment plans, it is necessary to have a common parameter that can be used for all types of investments with different investment amounts and different holding periods. That common parameter is to assume that all investment returns get compounded annually.

If the investment is held for lesser than one year, then we need to calculate the return in percentage terms by assuming that the investment is held for one year.

CAGR – Compounded Annual Growth Rate

If you want to calculate the return for one time investment then CAGR (Compounded Annual Growth Rate) is used. But when the investment is done periodically or staggered over a period of time, CAGR is not useful to calculate the return.

In the case of staggered investment, either IRR or XIRR can be used.

IRR – Internal Rate of Return

If the investment is done in a strict periodic manner, you may use IRR to find out the rate of return. For example, if an investment is done at a fixed interval (Monthly/quarterly/yearly) and withdrawal only at the end of the entire tenure, IRR can be used to find out the return.


If cashflow includes frequent inflow as well as outflow over a period of time, we need to use XIRR for calculating the rate of return. XIRR gives you the flexibility to assign specific dates for each cash flow, making it a much more accurate calculation.

Though Return is one of the most important criteria but we should also look at other parameters like consistency, portfolio quality, risk, risk-adjusted returns, etc.

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Save tax and Plan retirement with Mutual Funds

For most Indians, retirement is the most ignored financial goal. From the beginning of our career, we start chasing short-term goals which give us short-term gratification like buying a car, buying a New smartphone, vacation, etc. Most of our savings are channelized into achieving our Retirement goals.

However, we all have a desire to save tax. We can channelize this desire to achieve two goals,

  1. Saving Tax
  2. Creating Retirement Corpus

Under section 80C, a deduction of Rs 1,50,000 can be claimed from your total income. In simple terms, you can reduce up to Rs 1,50,000 from your total taxable income through section 80C. This deduction is allowed to an Individual or a HUF.

To save tax, we normally invest in PPF and other instruments which has a long lock-in period. When you are ready to invest for such a long period, investing in equity is a better idea, as equity is less risky and more rewarding in long term. You may choose to invest in Equity Linked Savings Schemes (ELSS) of mutual funds to save tax under section 80 ( C ).

What is ELSS?

An Equity Linked Savings Scheme (ELSS) is an open-ended Equity Mutual Fund that doesn't just help you save tax, but also gives you an opportunity to grow your money. It qualifies for tax exemptions under section (u/s) 80C of the Indian Income Tax Act.

Along with the tax deductions, an ELSS offers you the opportunity to grow your money by investing in the equity market. ELSS carries a lock-in period of 3 years. Furthermore, you can also choose to invest through a Systematic Investment Plan and bring discipline to your tax planning.

Here's how it will work. Say, one invests Rs 12,500 monthly in ELSS (Rs 1.5 lakh annually) for 25 years of one's working life towards retirement. Assuming a growth rate of 12 percent a year, the corpus could be nearly Rs 2.12 crores, which could be part of one's retirement portfolio in addition to other investments earmarked for retirement. 

SCHEME NAME 1 Year 2 Year 3 Year 5 Year 7 Year 10 Year 12 Year 15 Year
Capital Invested
Rs 1 Lac Rs 2 Lacs Rs 3 Lacs Rs 5 Lacs Rs 7 Lacs Rs 10 Lacs Rs 12 Lacs Rs 15 Lacs
Returns Generated from Various Schemes
Maximum ELSS Return ₹ 1,21,559 ₹ 2,75,071 ₹ 4,41,203 ₹ 8,98,110 ₹ 16,13,266 ₹ 26,14,434 ₹ 35,18,416 ₹ 82,92,953
Minimum ELSS Return ₹ 1,00,030 ₹ 2,29,534 ₹ 3,50,048 ₹ 7,25,657 ₹ 12,12,686 ₹ 19,86,361 ₹ 25,83,101 ₹ 48,77,739
Average ELSS Return ₹ 1,10,884 ₹ 2,51,585 ₹ 3,89,498 ₹ 8,08,623 ₹ 13,58,294 ₹ 23,01,979 ₹ 30,64,690 ₹ 69,33,800
S & P BSE Sensex ₹ 1,13,410 ₹ 2,45,862 ₹ 3,72,791 ₹ 6,97,401 ₹ 11,06,090 ₹ 17,71,240 ₹ 23,53,781 ₹ 47,32,426
PPF Calculated @ Actual Rates ₹ 1,07,829 ₹ 2,24,307 ₹ 3,50,839 ₹ 6,37,886 ₹ 9,76,743 ₹ 15,94,563 ₹ 20,93,314 ₹ 30,01,347

Past Performance may or may not sustain in the future. The above table shows the value of Rs. 1 Lac invested in PPF, Sensex and various ELSS Schemes as on 31ˢᵗ May of every year. (Valuation Date: 31ˢᵗ May 2018) Note: Amount assumed Rs. 1 Lac in PPF & ELSS. However, deduction u/s 80C has been increased from Rs. 1 Lac to Rs. 1.5 Lacs w.e.f 22ⁿᵈ August 2014.

Disclaimer: The information contained in this report has been obtained from various sources. While utmost care has been taken for the preparation of this report, we do not guarantee its validity or completeness. Neither any information nor any opinions expressed constitute an offer, or an invitation to make an offer to buy or sell any fund. Investors should take financial advice with respect to the suitability of investing their monies in any fund discussed in this report. Mutual fund investments are subject to market risk. Please read the Scheme Information Document and Statement of Additional Information carefully before investing. 

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