After market's fall from peak, it's time to review your portfolio: Experts

With interest rates on home loans on the upswing, plan for prepayments

While 2020 and 2021 were lost to the pandemic, 2022 has come with its own set of challenges. Global and Indian equity markets have witnessed a lot of turbulence. Such a scenario makes a mid-year review of your portfolio essential.

Chethan Shenoy, director, head of products and research team, Anand Rathi Wealth, says, “A mid-year review of the portfolio is necessary to assess if it is on the right track, or if some action is required.”

Are you saving as planned?

Your investment strategy would require you to save and invest a fixed amount each month. Check if you were able to adhere to your plan.

If you fell short of your target, then develop a monthly household budget with your partner, and try to adhere to it.

Dilshad Billimoria, board member, Association of Registered Investment Advisors (ARIA), says, “While clients should save and invest according to their goals and investment horizons, if their goals and priorities change then they also need to realign their portfolios.”

In some cases, this would require an acceleration of the savings rate. In others, there could be a need to direct more money into the portfolio that caters to a higher-priority goal.

Investment review 

Make sure your portfolio is adequately diversified. Shenoy says, “Your portfolio should include assets that have low correlation with one another. This will enable the portfolio to achieve its goal with lower volatility.”

Equities, debt and gold should be a part of most retail portfolios. The equity portion should be sub-allocated between domestic and international equities. And the domestic portfolio should be further allocated among large-, mid-, and small-cap funds.

With time, the weights allocated to various components get altered due to market movements. During the mid-year review, check if there’s a need to rebalance your portfolio. 

Raj Khosla, founder and managing director, MyMoneyMantra.com, says, “The benchmark indices have dropped more than 10 per cent from their January highs. This will call for some rebalancing.”

Suppose that you had allocated 50 per cent weight to equities in your portfolio. Owing to the market correction, your equity allocation would have fallen below this level. Hence, you will need to allocate more to equities in the near future to bring the weight of equities back to its original level. Similarly, rebalancing may be required between domestic and international equities, and in the sub-allocation to large-, mid-, and small-cap segments of the market.

Cull underperforming funds

Check the performance of individual funds as well. Look at each fund’s 10-year performance. If it is significantly below its benchmark and category average, stop investing in it and put it on your watch list. Observe it for three to four quarters. If the underperformance persists, exit.

Emergency ready

Make sure you have at least six months’ income saved up in your emergency fund. If you have dipped into this corpus, replenish it.

Insurance coverage

Evaluate whether the sum insured of your health insurance policy is adequate for your family and you. If not, buy added cover. Also check if you need add-ons.

Amit Chhabra, head–health and travel insurance, Policybazaar.com, says, “Make sure the sum insured is adequate to cover both in- and post-hospitalisation treatment.”

If your existing plan has a co-payment clause, make sure it is minimal. “You could also consider opting for a plan without this feature, even if it means paying a higher premium,” says Chhabra.

Also evaluate if your life insurance cover is adequate. If your liabilities have increased, say, because you have taken a home loan, buy additional coverage.

Debt check

Several lenders have hiked their home loan rates recently. If that has affected you, consider prepaying the loan. If you have expensive loans such as credit card loans, try converting them into less expensive ones.

Finally, check if all your assets have nominations and updated addresses. If you have not prepared a Will, do so.