Your investment plan may need a health check-up
It is true that we should plan ahead, think about the future and invest accordingly. At the same time, it is also true that your life may not always turn out to be the way you had planned it. Hence, your mutual fund portfolio also may need a revisit in order to ensure that you are on course. There can be many variables like your income, expenses, credit, responsibilities, current investments etc. that may change and in turn, require you to change your roadmap too.
Here’s how you can approach it-
Take stock of the goals
Hypothetically speaking, at 25, one of your mid-term goals may have been to upgrade your car to a luxury one; however, you had a child at 30. Now, investing for your child’s education may become more important than the previous goal. Thus, say, if you were investing in a debt mutual fund scheme for your previous goal, you might now need to think long term and invest in an equity scheme for your child’s education, depending on your risk appetite.
Change in goals may result in a change in asset allocation in your portfolio or even your risk appetite; the important thing is to identify these changes in time.
Different investments for different goals
Your different goals may require different kinds of investments, and as you change goalposts, the investments may require changing too. If you have added a new financial goal recently, you need not necessarily invest an extra amount in one of the existing investments. At the same time, you need not invest in a new scheme either. It is important that you check your current portfolio mix and also the investment horizon required for the new goal, and decide on an appropriate scheme.
Sync your funds with the investment horizon
Have you shifted a goal post? Has that changed the investment horizon? If yes, then perhaps it is time to look at the scheme you are invested in and the risks associated with it. For example, in the earlier instance, if you have for now postponed the luxury car goal by 10 years; then, you may consider investing in an equity scheme because your investment horizon has changed and you can, perhaps, afford to have a slightly higher risk appetite.
Check your portfolio performance
A major contributor to your plan to goal success ratio is the performance of your portfolio. It is advisable to check the performances of individual investments and review if their returns are as per your expectation and sufficient to help you achieve your goals. You may have to decide to exit the investments wherein you have more than necessary exposure or enter a type of investment that may be required to achieve certain goals. At times, you may decide to shift a goal post because you are convinced with a certain investment which may take a bit of extra time to help you reach there.
To minimize taxes and exit loads
Not just your internal factors but even external factors affect your returns from your investments. For example, factors like capital gains taxes in a mutual fund scheme can keep changing from time to time as per the Government regulations. You can aim at minimizing such liabilities and in the process, move away from investments which may not be as much beneficial anymore owing to change in policies.
Exit when you need to
If you have met your goal, then you may exit the scheme. Tracking the completion of your goals is as important as defining them in the first place. It is possible that the returns garnered from one scheme surpassed your expectation and were more than sufficient for the goal, however, now that the goal has been met, you may want to exit the scheme basis the current risk appetite.
Periodic cleaning up and review of your investment portfolio also ensures that your documentation and records are in place. It can also be a good time to make your next to kin aware of your plans so that they are in the know. More often than not, it is also a reminder of how your circumstances and life-goals may have changed. Having said that, it may be a good practice to decide on the period of review because reviewing more often than required may result in hasty decisions.