Once you have invested in a mutual fund, your task is not yet complete. Your responsibility doesn’t end there. Let’s have a look on what you need to do after investing in mutual funds-
Even if you have bought the fund after thorough research or may be selected the best performing funds, that doesn’t mean that you do not review your fund performance. No matter how you make investments, a periodic review is a must. A review once a year would be adequate but you need to focus on these following points:
1- Fund vs Benchmark: The fund must be able to beat the benchmark for you to not keep the fund under your watch list and vice-versa.
2- Fund vs Category: Compare your funds’ performance with those of others in category and see whether the fund is above average performance or not.
If the funds fail according to these parameters then you need to check if there is a change in the fund management (the fund undergoes a period of underperformance if there is a change in fund management. But, if this continuous for more than a year it would be time to move on to a better fund.
Rebalancing is updating the asset allocation of your portfolio periodically. It is at most important to stay aligned in line with your financial goals. Rebalancing also becomes important when you are nearing to completion of your financial goals.
- Stay for long term
After selecting a fund and investing in it, invest for a long term horizon to benefit from the advantage of power of compounding. Redeem your funds only when your investment goal is complete. Or, by chance if your funds fail to pass the benchmarks or may be due to poor performance. Also, do not redeem if your fund is outperformed other funds and gave good returns. Rebalance accordingly but do not redeem until you reach your goal.
- Step Up
If your income increase, your capacity to save & invest also increase. Invest as much as possible each year. Increase it in your existing funds or you may invest in new funds.
The first step to wealth creation is making prudent investments. But, if you got to stay on right path in future it becomes important to review and rebalance your portfolio periodically.
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