Bought too many equity funds? Time to review and rearrange your portfolio

A bull run in the equity market comes with its own set of problems. While on the one hand, you are making a lot of money if you are invested, on the other hand, there is a risk you may have gone overboard in your exuberance and kept on adding new mutual fund schemes in your portfolio and are now having a problem of plenty.

You suddenly find you have too many mutual fund schemes in your portfolio, some of which are not performing or are mere duplications of other schemes.

Investing in equities in bull markets has to be well thought out. Reckless investments may lead to losses in case there is correction in the market. Here is how to handle the situation and reorganize your mutual fund portfolio:

Know what you have

At the outset, list out all the schemes in your portfolio. If you take a look at the consolidated statement of mutual funds, then you get the names and allocations. This is important if you have been investing through multiple distributors. Do figure out the weight of each scheme in your portfolio in percentage terms. Small allocations to schemes often do not make the needle move. Such schemes are the prime candidates for dumping.

Drop unwanted schemes

If you have started with an asset allocation formula, then figure out what your current asset allocation is now. You may have added schemes that do not fit the bill. For example, you decided to invest 80% of the money in large-cap funds and 20 percent in mid-cap funds, to begin with. However, over the last few months, you have added a few sector funds and small-cap funds that are now doing well to your portfolio. These schemes are not supposed to be in your original scheme of things. It is time to have a word with an advisor, and prune the exposure wherever required.

Trim similar schemes

There may be occasions where the investors may have over-diversified. In the above case though one is expected to put 80% money in select large-cap funds, but just because some other large-cap fund has done well it gets added to the existing list of large-cap funds in the portfolios. If you have too many large-cap equity funds in your portfolio, then it can be trimmed. An index fund and one actively managed large cap fund can be enough to attain a large cap fund for most of the retail investors.

Avoid arbitrary moves

Many times investors buy schemes that are doing well. There is no thought put on why the scheme is doing well or what are the risks involved. Such arbitrary investments need to be reviewed. If you cannot find a reason why A scheme should be there in your portfolio, get rid of it.

Weed out underperformers

Instead of small allocations to a large number of individual schemes, it is better to have meaningful exposure to a few select schemes. Too many schemes make it difficult to track portfolios. And in that process, we may miss some of the underperformers. This is especially true of legacy schemes. Sometimes schemes with a certain style of investing or schemes employing certain strategies do not work. For example, value-focused equity funds did not do well for years till CY2020. However, in the last one year, most of the equity funds have done well, including value-focused equity funds. However, if you have some underperformers, figure out the reasons and take informed action.