How to use our MF Review Tool
Our MF Review Tool is a recommendation tool providing our view on funds. That is – whether a fund is a buy or hold or sell. We do a quarterly review of these views or change them as appropriate.
Objective of the tool
Before we move to the changes, we would like to explain our process, philosophy, and objective behind providing this tool.
The objective of this tool is to help you fulfil a major requirement of portfolio maintenance – which is to ensure you stay with good products and bad products are weeded out. When you use this tool to review your funds, you will know when funds are slipping or when they are improving. At a glance, you will know which of your funds you should be keeping an eye on, and which ones you should weed out of your portfolio.
The tool seeks to identify good funds or slipping funds, sometimes well ahead of market. This is not a job easily done even by advisors because unless one is looking and researching active mutual funds closely, it is very unlikely that such trends can be identified.
However, portfolio review requires that you also manage your asset allocation, that is, how much of your portfolio is in equity, debt, etc. We have touched upon how to manage it yourself in our detailed article here. Please use that or please consult your advisor in this regard.
MF Review tool is meant to be a self-service, DIY tool. We do not further provide individual advice. The reason for these is that as SEBI-registered research analysts, we are equipped and allowed only to provide our opinion and recommendations on products. Providing financial planning, advisory and tax consulting services would be beyond our ken or capability and also do not come within the regulatory permit given to us.
This tool is different from Prime Ratings
Our buy/hold/sell calls and our ratings are not the same. We do not simply go by ratings to give those calls.
Ratings, with all the fine-tuning that we do, can still mask 2 things: any near-term but steadily trending improvement or any emerging risks. Hence there is one more layer of analysis that goes before we provide our calls.
This might involve looking closer at near-term trends and juxtaposing it with the changes in the portfolio or the reason for a portfolio turning around or slipping.
While there is certainly some structure to giving these calls, it is certainly not a cookie-cutter approach. There is enormous thought and debate that goes behind some of these calls that are borderline between a buy and hold or a hold and sell.
How and when you can use this tool
You can use the MF review Tool in the following ways:
- Check whether the funds you hold are buy or hold or sell periodically – ideally quarterly or half yearly and choose to act accordingly.
- Check whether a fund being given to you by an advisor or relationship manager is indeed a good one.
- Check when an advisor or relationship manager asks you to sell a fund, whether he/she is indeed doing the best for you or simply churning your portfolio.
- If you are a do-it-yourself investor and see a fund you hold underperforming, validate your own thought by checking using this tool.
How to interpret our buy/hold/sell calls
When our review tool gives a buy on a fund that you checked, it means you can continue to hold and invest in it. You need not necessarily invest only in funds from our Prime Funds list. The ‘buys’ in your portfolio should do as well.
You can dip into Prime Funds when you want to add more funds for diversification or for holding a unique strategy. Please make sure that the fund you invest in is suitable for your time frame.
When we give a hold call, it means you can hold the fund and avoid fresh investments. A hold simply means we are concerned a bit about performance and are watching it, but performance is not bad enough to warrant a sell. Such funds may eventually move to a sell or even a buy. Sometimes a fund may have moved from a sell to a hold, meaning that it is improving. In those cases, too, it won’t directly become a buy (from a sell) as we watch for steady improvement in metrics.
If you run SIPs in these funds, then take a call based on the allocation of this fund in your portfolio. If the amount already invested so far in the fund accounts for more than 20-25% of your total portfolio, you can stop the SIP. Restart the SIP in other similar funds you hold that may have a buy recommendation in our tool. Else, pick from the relevant section in Prime Funds.
In other cases, you can continue with the SIP until the SIP period expires; don’t renew the SIP. If you have very few instalments left to complete in the SIP (say 6-8 months), you can allow this to complete regardless of allocations.
We look at several quarters of performance before giving sell calls. When we provide a sell, it means stop SIPs and exit the fund. Our views on the funds are entirely based on its performance over time and on our assessment of the portfolios’ near-to-medium term prospects and ability to bounce back. It is not based on the fund’s position in your portfolio.
Read more about how to interpret our hold or sell calls and how to act on them here. https://primeinvestor.in/how-to-review-your-mutual-fund-portfolio/
Overall, there are 4 layers of researched products we offer as far as mutual funds (which is just one of our offerings) go:
- Prime Ratings – our in-house MF rating tool. This tells you where your funds stand vis-à-vis their peers.
- MF review tool – explained earlier in this article.
- Prime Funds – our list of recommended funds that ensures there is variety in fund strategy, the risks do not overweigh return potential and the funds are bucketed in terms of time frame in the case of debt. This list is derived after the first two steps above.
- Prime Portfolios – our readymade portfolios built for a range of goals and timeframes that use mutual funds, ETFs, deposits and other schemes.
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