IN FOCUS : Here’s How You Can Manage Your Equity Portfolio Well

The equity market has been doing well for over a year now. There are indications of structural improvement in the economy over the next few years and that augurs well for the prospects of the stock market. Moreover, inflation has hit a multi-year low and all the parameters are indicting that inflation is likely to fall further. As is evident, equity investors will have a lot to cheer about going forward too. However, for them to maximize their gains, the key would be to invest in a disciplined manner and take a long-term view on the market. It is heartening to see an increasing number of investors investing through a Systematic Investment Plan (SIP) in equity funds.

It is a proven fact that a disciplined approach eliminates emotions and biases from one’s investment process and that goes a long way in tackling the ups and downs of the market efficiently. However, investors must realise that a disciplined approach only reduces the risks associated with equity investing to a large extent; it does not eliminate the risks completely. Therefore, investors must be careful about how much of their portfolio should be allocated to equity. Besides, investors must be prepared to face certain tricky situations during their time horizon. The levels of success that can be achieved by investors will largely depend upon how they face these situations. Here are some of these situations and how investors can tackle them successfully:

The temptation to sell when markets do well: Usually investors experience a mixed feeling of fear and excitement when the market touches dizzy heights. As a result, they face the dilemma of whether to stay invested or book profits. In fact, many investors end up booking profits too early and hence miss out on varying degree of gains depending on the timing of exit. While booking profits periodically may be essential for a set of investors, for those who are in the process of building a corpus through systematic investing over the long-term, pulling money out abruptly can prove to be a serious lapse that could jeopardize their financial future.

Investors must remember that major advantages of adopting a disciplined approach are to benefit from ‘averaging’ as well as avoid the temptation of exiting every time the market goes up or down. In fact, regular investments ensure that one invests even at lower levels which an occasional investor does not normally do. This is important as equities, as an asset class, tend to be more volatile in the short term as compared to other asset classes.

Tracking the portfolio: While some investors look at their equity fund portfolio valuation almost on a daily basis, there are others who do not feel the need to track their portfolios as they believe that merely by having a long-term horizon and by investing regularly they can earn handsome returns. Both these strategies are faulty as looking at a portfolio every day can make an investor lose his or her patience which may compel haphazard action. Similarly, by not monitoring the portfolio at all, an investor may allow non-performing funds to continue in the portfolio which could seriously impact the overall portfolio return over a period of time. Ideally, one should analyze the portfolio once a quarter and that can help in indentifying funds that may be under-performing vis-a-vis their peer group and/or their benchmark. While keeping a track of the portfolio may sound like a daunting task, in reality it is not so.

For investors, the main sources of information can be websites of mutual funds that have complete and up-to-date information on the performance of their funds, newspapers, magazines and various personal finance-related television shows. Besides, the Association of Mutual Funds in India (AMFI) has its own website that contains daily NAV for all the schemes, historical NAVs, scheme details as well as half-yearly and annual accounts of schemes. In addition, there are also many full range personal finance portals that cover mutual funds widely. They provide a comprehensive listing of schemes and comparative analysis for each of the schemes. These can help investors a great deal in knowing how their schemes are doing vis-a-vis the peer group as well as the benchmarks.

Temptations to include aggressive funds in the portfolio: In a rising market, most aggressive categories of funds like mid-cap funds, thematic as well as sector funds tend to do better than funds that are well-diversified. While it is true that in a growing economy mid-cap companies have a lot of room for growth, investing aggressively in them could take an investor beyond his risk-taking capacity. Therefore, investors need to be careful while including these aggressive funds and must ensure that the extent of exposure to these funds should not be disproportionately high.