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What is the right time to review my mutual fund portfolio?
- Shrijeet Dongre
 

The mutual fund portfolio needs to be reviewed periodically. Ideally you should review your mutual fund portfolio quarterly to understand how is it performing. At times it also helps you to understand that whether you have invested in a fund who has a huge exposure to a particular stock or bond which is out of favor for some fundamental reasons. Continue investing in them might lead to fall in the performance of your portfolio. So, doing a quarterly review would help you in early exit from such funds before it gets worse. However, when it comes to annual review, you not only have to look at the overall performance of the portfolio and a particular fund, but also to rebalance it. This will help you to book profits in asset class that have grown and buy another funds available at cheaper rate. This will help you to manage overall risk of your mutual fund portfolio. So, review your portfolio quarterly (where you will just look at the portfolio and don’t take any action unless needed) and while annual review, rebalance your portfolio.



Definitely, expense ratio does matter. This is because the returns that you earn is post accounting for the expenses. For instance, let us assume that your fund is showing returns of 13.5 per cent and its expense ratio is say 1.5 per cent, then the actual returns earned by the fund is 15 per cent, while after accounting for expenses, you are getting 13.5 per cent. The NAV (Net Asset Value) accounts for expense ratio on a daily basis, and based on the NAV, the returns are calculated. As you mentioned that there is a difference between the expense ratios of direct plan and regular plan for the fund in question. There are actually two ways in which mutual fund charges expenses, one being regular plan, and the other being direct plan. Direct plans always carry lower expense ratio than the regular plans. This difference is due to the commissions paid to the mutual fund distributors. This is the reason the direct plans have lower expense ratio than the regular plans to the extent of distributor’s commission. So, say, if a fund is paying high commissions, then in such cases, the direct plans will be cheaper than the regular plans. On the other hand, if a fund is paying low commissions, then there would be marginal difference between regular plan and direct plan. Usually the difference ranges from 0.5 per cent to 1 per cent.

However, you should not base your decisions solely on the basis of the expense ratio of an equity fund. Recently, SEBI (Securities and Exchange Board of India) has come up with a mandate that as a fund gets bigger, it should charge lower fees. So, don't be entirely guided by expenses, specifically in big small-cap and mid-cap funds. Fund should be selected based on your risk appetite and goals for which you want to invest. 



Ethical funds are those that avoid investing in industries like alcohol, tobacco and other unethical businesses. These funds are also Shariah compliant. This means that they do not invest in interest-generating businesses or businesses that borrow heavily. So, they always refrain from investing in banks and NBFCs (non-banking financial companies). Ethical funds are interesting, but they have not yet taken off in a big way.

The number of companies in which they avoid investing is not high. These funds avoid investing in banks and NBFCs and it has proved to be good for these funds, as the past 7-8 years have been disappointing for the banking industry.

As of now, there are two such mutual funds that are available. One being Tata Ethical Fund and other being Taurus Ethical Fund. These funds have performed well in the last couple of years. However, it is better to keep such trendy things at bay and invest in quality multi-cap fund instead. If you are really interested in investing in these funds, then these funds should not constitute more than 5% of your total portfolio. 

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