Don't Just Invest, Review! A Guide to Periodically Assessing Your Mutual Fund Portfolio

If you are a serious long-term mutual fund investor, ideally, you should review your portfolio at least once a year. Such a yearly review allows you to:

• Spot underperforming funds

• Check if your asset allocation is suitable as per your financial goals

• Decide whether you need to add, switch, or reduce any investments

Additionally, regular reviews also keep you informed about the latest market trends. Need assistance? Below are five techniques you may follow in 2025 to make a detailed analysis of your mutual fund portfolio:

Start with a detailed mutual fund comparison. Check how each fund has performed compared to its “benchmark”. 

For those unaware, a benchmark acts like a reference point and shows how well a mutual fund is performing in comparison to the overall market or a particular segment. For example, 

• Large Cap Category Fund uses the Nifty 100 as its benchmark. 

• Now, this means the fund’s returns are compared against how the Nifty 100 has performed over the same period.

How to Apply This Review Technique?

Firstly, check your fund’s benchmark on its factsheet on the AMC’s website. Then, compare the fund’s returns with the benchmark’s returns over different time periods, such as 1 year, 3 years, 5 years, and since inception. Now, there could be two possible scenarios:

Every mutual fund charges a small yearly fee called the “expense ratio”. This covers the cost of:

• Managing and running the fund

• Administrative charges

• Operational expenses

Usually, it is shown as a percentage of your total investment. Please note that even though it may look small, a higher expense ratio can reduce your overall returns over time.

How to Apply This Review Technique?

Compare your fund’s expense ratio with the average ratio of similar funds in the same category. For example, if most funds in your category charge 1%, but your fund charges 2%, that’s worth noting!

Be aware that passive funds usually have a lower mutual fund expense ratio because they simply track & replicate the market without Fund Manager’s Active Investment Strategy. 

Now, in contrast, actively managed funds charge higher expense ratio. However, that extra cost is only reasonable if the fund regularly performs better than its benchmark.

Before continuing with any type of mutual fund, it is important to see how it has performed in the past. By studying a fund’s history, you can learn how it has handled different market situations (both when the market was rising and when it was falling). Ideally, a fund that performs well in both good and bad times may be preferred. 

Note – The past performance of the mutual funds is not necessarily indicative of future performance of the schemes. 

How to Apply This Review Technique?

Check the fund’s performance over different time periods, such as 1 year, 3 years, 5 years, and since inception. Now, compare these results with other similar funds. You may obtain any of these two results:

A diversified fund spreads its investments across:

• Different sectors (like banking, technology, and healthcare) 

and

• Asset types (like stocks, debentures, and cash instruments). 

Such a mixing reduces the impact of a poor performance in any single sector or asset. For example,

• Say the technology sector falls sharply.

• Now, gains in banking or healthcare holdings can offset some of these losses.

• This keeps the overall portfolio relatively stable.

Similarly, several fund managers combine stocks with bonds to reduce mutual fund risk, as bonds are generally less volatile than stocks.

How to Apply This Review Technique?

While reviewing your fund’s strength, check for these three major parameters: 

When reviewing mutual funds, don’t focus only on how much return they have given. It’s equally important to see how much risk was taken to achieve those returns. For example,

• Let’s say there are two mutual fund schemes, “Fund A” and “Fund B”.
• Both give a 10% return over one year.
• Fund A invests only in stable + large companies. 
• Its returns don’t fluctuate much and remain consistent throughout the year.
• In contrast, Fund B invests in smaller + riskier companies. 
• Its returns vary significantly over the same period.
   

Now, even though both gave a 10% return, Fund B took more risk to achieve it. If the market drops, Fund B’s NAV could fall much more than Fund A’s. This is why looking at risk-adjusted returns is important. 

How to Apply This Review Technique?

To understand the relation between risk and reward, you may refer to these three risk-adjusted metrics:

So, as an investor, you now know that mutual fund investment is not a one-time activity. You should make regular periodic reviews to check whether your mutual fund investment plans are serving your financial goals, risk tolerance, and market conditions. 

To make a thorough review, you can follow these techniques:

• Check if the fund’s returns outperform its benchmark over 1, 3, 5 years and since inception.

• See whether the fund’s costs (expense ratio) are reasonable compared to similar funds.

• Study past performance and look for managerial consistency.

• Evaluate asset allocation, sector exposure, and quality of holdings.

• Look at standard deviation, beta, and Sharpe ratio to assess risk versus return.
  
   

• An Investor Education and Awareness Initiative by Tata Mutual Fund. 

• To know more about KYC documentation requirements and procedure for change of address, phone number, bank details, etc., please visit: https://www.tatamutualfund.com/deshkarenivesh

• Please deal only with registered Mutual Funds, details of which can be verified on the SEBI website under ‘Intermediaries / Market infrastructure institutions.’

• All complaints regarding Tata Mutual Fund may be directed to service@tataamc.com and/or https://scores.sebi.gov.in/ (SEBI SCORES portal) and/or https://smartodr.in/login

• Nomination is advisable for all folios opened by an individual, especially with sole holding, as it facilitates an easy transmission process. 

• This communication is a part of the investor education and awareness initiative of Tata Mutual Fund.