It is heartening to see an increasing number of investors taking the selection process seriously than ever before or while investing in mutual funds. They have begun to consider factors such as suitability of the fund, past performance, investment philosophy and universe i.e. what is likely to be the strategy of the fund, and the kind of stocks one can expect to see in the portfolio, as well as the level of flexibility that a fund manager enjoys in managing the fund. This will go a long way in not only benefiting the investors in the long run but also keep the fund managers on their toes.

However, many investors are still not sure about how frequently they need to review their portfolio and what strategy to adopt for selling a fund. There is no doubt that reviewing one’s portfolio is one of the most important ingredients to achieve investment success on a consistent basis. At the same time, doing so on a daily basis, as many investors do, can be counter-productive.

Investing for long periods requires an investor to have patience to wait out short-term market volatilities and uncompromising focus on the long-term investment goals. That’s why the right selection process at the start of the investment programme becomes crucial. In other words, if you select well at the start, it will do your portfolio a world of good. As regards monitoring the portfolio, it will be a good idea to begin reviewing the portfolio on a quarterly basis. Regular monitoring would prompt you to ask relevant questions to your advisor, if you have one. This in turn would make you a better investor over time and ensure that your portfolio remains on track. Besides, don’t forget to review the portfolio in greater detail when your investment goals or financial circumstances change.

It is important to remember that a portfolio review shouldn’t always be done with the sole purpose of making changes in the portfolio. While one shouldn’t hesitate in making changes if required, it will be wrong to consider short-term performance to identify non-performing funds in the portfolio. While there cannot be a set formula for determining the perfect time to sell, one can follow certain guidelines while deciding to sell an investment in a mutual fund scheme.

Some investors make the mistake of holding on to their funds for too long. But they are in the minority. Many more investors err on the side of selling funds without giving them time to show what they can do. While analysing the performance of funds, remember that negative returns from a fund may not necessarily mean poor performance. Even the best of the fund managers are likely to give negative returns during steep market downturns. Therefore, the time period considered also signifies the true level of performance. For example, short-term negative returns in line with the market from a fund that has been doing well for years means nothing and hence should be ignored.

Similarly, even a bad fund manager can give decent returns when the markets are doing well. One should be vigilant enough to monitor whether the fund manager has enhanced the returns of a fund by increasing the risk level. For example, this could be by way of increasing exposure to mid-cap and small-cap stocks significantly when the markets are doing well. Therefore, both the right selection and regular monitoring are important for your long-term investment success. Remember, it is not either-or, but both.