Now that we are already five months down the line in the running financial year 2019-20 and have made investments of our choice, it is time that we look forward to our first review of the portfolio we have created. A portfolio review is as necessary as reviewing and resetting your wardrobe. The contents change with the changing season. Similarly, you need to see if the investments you have made are working as per the market scenario and more importantly are in right alignment with your financial goals.
If not too regularly, a bi-annual review will help you stay in touch with your money makers and keep you updated with the market trends as well. Here are the 5 most important reasons why you should review your portfolio at least once a year;
1. To weed out parasites
By parasites, I mean the stocks which are not performing for quite some time now. They are parasites because they are feeding on the money you invested in them and are of no productive use. It is very important to review your portfolio and rule out such parasites which not only degrade your returns but also make you miss out on opportunities which otherwise could have been tried for with that money. It would need corrective measures to be taken and some almost idle savings waiting to be invested in the right stocks to create wealth. Read how to select the right mutual funds https://www.piggy.co.in/blog/how-to-select-the-right-mutual-funds/
2. To invest the idle money
Now that you have weeded out the non-performers from your portfolio, this brings us with some money, let us say a considerable amount of money, to be invested in stocks which are actually performing in the current market scenario. Do not let your money sit idle, be it savings account or money freed from your investment portfolio, put it back to work to create wealth for you. If you are skeptical about the market corrections, try out avenues with low risk. Depending on your liquidity needs and risk profile, you can choose your instrument. Know about the best SIPs at https://www.piggy.co.in/blog/top-10-sips/
3. To keep the KYC details updated
Another important thing which is now a mandate is to upload, validate and update your KYC details even with tiniest of the changes. An updated KYC is very important to conceal your personal information and to avoid any discrepancies. A change in mobile number which you did not update in your portfolio KYC can lead to misdirected information or in case of change of address, you may be in for some demographics benefits which can only be availed on updating the KYC.
4. Identify investments mistakes if any
If you are not a seasoned investor, there are likely chances that you might have committed some mistakes in choosing the right funds. if your major concern is liquidity and your portfolio shows an inclination towards large-cap funds, it is a mismatch or if you are risk-averse and have invested generously in small-cap funds, you need to review your investments. Such mistakes which affect your ultimate financial objective need to be rectified as soon as possible or they can cause permanent damage.
5. Portfolio overlap
This is one of the most common mistakes that happen with not so savvy investors. There are a lot of funds in the market which appears to be different but inside hold exactly the same stocks. Especially when it comes to large-cap funds and index funds, this occurring is much common. Investors generally buy funds going by their name and not actually following all the holdings they possess. This directly affects the risk on your portfolio, if your hold 2 funds with same or similar performing stocks, your risk gets exactly doubled during a market correction. Read how to build a sustainable portfolio at https://www.piggy.co.in/blog/build-a-financial-portfolio/
If you are well-versed with the investments you have made and know their tax benefits, they will come handy to you while your file your taxes and income tax return. If saving taxes comes early on your financial plan, you need to select only or most of those funds which offer tax benefits. It will also give you an idea where more you can invest to save maximum on taxes.
Hence, it is crucial to successful investing that you review your investment portfolio at least on a yearly basis, best if you do it bi-annually. This will not only help you to keep up with the market trends and movements but also help you to locate and rectify any mistakes you have made by an impulsive action.