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How to keep track of your Mutual Fund investments?

Mutual funds are professionally managed collective investment schemes that seek to deploy investors’ money as per their mandate and generate optimum returns by balancing the risks involved. They have a hierarchical organization structure with multiple checks and balances to ensure protection of investor interest. While the Asset Management Company (AMC) is involved hands-on in the investment activity, the trustees keep a keen watch on the functioning of the AMC and the other functional agencies like the custodian, registrar, etc. Mutual funds are tightly regulated by the capital market regulator Securities and Exchange Board of India (SEBI) with strict norms of investment and reporting. The disclosure level of the mutual fund industry is unparalleled in the Indian financial product landscape.

Is there a need for you to keep track?

Given the above secure environment in which mutual funds function, it may appear that investing in these products is a do-it, forget-it affair. Well, not necessarily. While the systems and controls take care that your money is handled prudently and your interests are taken care of adequately, you need to keep a tab on the investments from the perspective whether they continue to remain relevant to your goals and risk appetite. It is your responsibility to ensure that you get what you expected or were communicated. Here’s how you can go about keeping track of your mutual fund investments.

Keep track of performance: While mutual fund schemes have an identified benchmark against which their performance is compared; they also need to compete with similar schemes that operate in the market. So it is necessary that you evaluate the performance of your funds periodically against their own benchmark index and also comparable funds. You should keep in mind that evaluation should be done within the framework of the fund mandate and behaviour of the financial markets in general. For example, an equity fund may under-perform in the short term while it has been invested with a long term strategy. And you should compare peers (comparable funds) with similar investment objectives and style to understand the real picture behind performance.

Monitor investment style: A fund may have claimed to invest with a value approach to stock picking but may gradually veer to a growth style. Or a mid-cap fund may morph into a multi-cap fund due to the circumstances of the financial market. It is important that you keep track of the style integrity of your funds. A change in style could change the risk profile of the fund such that it may increase the overall risk of your portfolio as a whole. Sometimes the investment style and strategy is well defined in the Scheme Information Document (SID) of the fund and one may refer to it to get a clear picture of what is allowed and what is not.

Fund manager change: While many fund houses have evolved investment processes that function smoothly without overdependence on individuals, a fund manager does impart his own touch and expertise to the fund performance. Smart sector and security selection skills of the manager do add value to a portfolio. You hence need to keep track of any change in the fund manager and the credentials of the new manager, if there is a change. You may need to evaluate the changed investment approach of the new manager to ensure it fits your own.

Portfolio holdings: You would need to watch the concentration of the holdings by keeping track of the fund’s top 10 holdings or top 25 holdings. If this proportion is too high, it may indicate extra risk to the portfolio. At the same time if it is too low, it may mean too many holdings in the portfolio which may not be optimal. You would also do well to assess the quality of the portfolio by monitoring parameters like credit quality, duration, and yield to maturity of a debt fund. In an equity fund, exposure to small cap stocks, valuation of the portfolio like the Price/Earnings (P/E) ratio, Price/Book (P/B), dividend yield, etc. are important parameters to watch.

Where do you get the required information?

The whole exercise of tracking your mutual fund investments is not as complicated as it appears at first glance. There are a variety of tools that you can utilize. Some of them are:

Fund house documents like fact sheets, investor newsletters, etc. are a rich source of information on your mutual fund schemes. They disclose all pertinent data of your holdings. You may also refer to the Scheme Information Document (SID), Key Information Memorandum (KIM), etc. issued by the fund houses.

Online tools provided by financial portals and mutual fund dedicated websites provide objective information and opinions on various mutual funds and also provide you the facility of creating your portfolio on their site. So you can get not only current status but also in-depth analysis of your portfolio along with expert views on your holdings.

While a good beginning is half the job done, you need to do the other half too by periodical monitoring and review. After all, “trust but verify” is a good approach in money matters, right?

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Mutual fund investments are subject to market risks, read all scheme related documents carefully.