Invest and forget! That’s not how investing in mutual funds works. Instead, it is an ongoing process that requires regular assessments. While your idea may be to stay invested for the long term, it is important to review your mutual fund portfolio periodically.
But why? That’s because both the market and your financial goals aren’t static! Over time, your investment objectives, income, and risk-taking ability may change. Similarly, the market conditions also shift, which can affect how your funds perform.
Thus, you must make periodic analysis of your mutual fund portfolio to see if your investments are still suitable for your goals and current financial situation.
Okay, but how to do this? Read this article to learn five different ways you can review your mutual fund investment plans in 2025.
5 Techniques to make a thorough Mutual Fund Portfolio Review in 2025!
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:
1. Compare Each Fund’s Performance with Its Benchmark
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:
| Scenarios/ Aspects | A) Fund “Outperforms” Benchmark | B) Fund “Underperforms” Benchmark |
| What does it mean? | If the fund’s performance is higher than the benchmark, it shows that the fund manager has added value by making smart investment decisions. | If it regularly underperforms, it means the fund is not keeping up with the market expectations. |
| What can you do? | You may continue with the scheme. | You may need to review whether it still fits in your portfolio. |
2. Check the Fund’s Expense Ratio
Every mutual fund charges a small yearly fee called the “expense ratio”. This covers the cost of:
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.
3. Review the Fund’s Past Performance
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:
| Results/ Aspects | Result I: Your Fund’s Returns are “Higher” than the Peers | Result II: Your Fund’s Returns are “Lower” than the Peers |
| Interpretation | If your fund’s returns are higher than most similar funds, it shows that the fund manager is making strong investment choices and delivering better-than-market results. | If the fund’s returns are lower than its peers, it indicates that the fund is underperforming compared to peers. |
| Your Potential Action | Your fund is performing “above average”, and you may continue investing in the scheme. | You might want to monitor it more closely or consider switching to a better-performing fund. |
4. Check How Diversified Your Mutual Fund Investment Plan Is
A diversified fund spreads its investments across:
and
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:
| Parameter | What Should You Look For? | Why is it Important? |
| Asset Allocation | - Check how the fund’s money is divided among stocks, bonds, and other assets.
| - A balanced mix of assets reduces risk and may offer better stability.
|
| Sector Exposure | - Check how much of the fund is invested in different sectors like banking, IT, or healthcare.
| - If a fund is too focused on one sector, it may face a higher risk.
- Investing across multiple sectors reduces overreliance on any single segment.
|
| Quality of Holdings | - Looks at the financial health and growth potential of the companies or assets the fund owns.
| - Strong + stable companies may increase the chances of better long-term returns.
|
5. Understand Risk-Adjusted Returns
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:
| A) Standard Deviation | B) Beta | C) Sharpe Ratio |
- It shows how much the fund’s returns fluctuate.
- A lower standard deviation indicates the returns are relatively consistent.
- Whereas a higher standard deviation shows greater fluctuations and higher risk.
| - It tells you how sensitive the fund is to market movements.
- A beta below 1 means the fund is less volatile than the market.
- Whereas a beta above 1 means it is more volatile and carries a higher risk.
| - It shows how much return the fund gives for the level of risk it takes.
- A higher Sharpe ratio means the fund gives more return for each level of risk taken.
- It is an indicator that a skilled fund manager is managing the scheme.
|
Conclusion
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.
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