Over the past few years, there has been a dramatic shift in India's household financial savings. An increasing number of households have taken to mutual funds as bank FD rates seem unappealing.
"The share of equity and mutual funds in annual household financial savings increased from around 2 per cent in FY12 to over 15.2 per cent in FY25. This shift has coincided with a steady rise in SIP contributions, with average monthly SIP flows increasing seven times from under Rs 4,000 crore in FY17 to over Rs 28,000 crore in FY26 (April-November)," stated the Economic Survey 2026.
What's more is that the share of individual investors — retail and HNIs — has increased over the last decade from around 11% in FY14 to 18.8% by September 2025, as per the Economic Survey. The individual investors currently dominate the mutual fund folio landscape, accounting for approximately 99% of total accounts as of early 2026. What this means is investors are taking the risk and preferring market-linked instruments for better returns.
While all this is very good, investors are also adding too many schemes, subscribing to new fund offers (because they are offered at Rs 10/-), adding what's hot, following the herd, and ending up overcrowding the portfolio and increasing the burden of managing it.
You see, diversification in mutual funds, when done excessively, does not yield the intended benefit. On the contrary, it proves counterproductive, results in unintentional portfolio overlap and potentially dilutes portfolio returns. In short, what you end up doing is 'diworsification'.
Also, what needs to be recognised is that markets move in cycles. It is not always that equities deliver positive returns year-on-year. For example, in the last decade, the Nifty 50 index has disappointed investors, delivering poor single-digit returns (2016, 2018, and 2022) or negative returns (2015). In these years, gold, known for its role as a safe haven and store of value, shone.
Moreover, within equities, there have been years when certain market cap segments fare better than others. For example, in 2017, 2021, and 2023, the Nifty Smallcap 250 and Midcap 150 showed explosive growth, often doubling or tripling the returns of the Nifty 100 (representing large caps). But in 2018 and 2019, the small and mid caps were in the grip of bears, and the large caps were resilient and fared better. Even last year, i.e. 2025, the mid and small caps corrected sharply after having run up sharply in the last five years.
So, the point is that how your mutual fund portfolio is structured determines the kind of risk and the returns you could expect. It is possible that your current mutual fund portfolio is not aligned well with the present-day realities to deal with the challenges.
For these reasons, a portfolio review is necessary. Just having added top-performing funds of the past does not guarantee your portfolio's potential success. In investing, following a "buy and forget" approach, particularly in the case of market-linked instruments, could do more harm than good to your financial well-being. Managing an investment portfolio of mutual funds, stocks, etc., is a dynamic activity requiring constant monitoring and timely actions. Over time, it is possible that certain investments may not perform. This needs your attention, particularly when the returns seem underwhelming over the long-term (over a year).
If a mutual fund scheme is underperform its peers and/or benchmark it may be due to poor portfolio characteristics, or top holdings or sectors are laggards, the fund manager has been responsive to rejig the portfolio, poor skills and experience of the fund manager, or maybe he/she is overloaded with many schemes, along with the lack of robust risk management measure and investment processes & systems.
Notwithstanding the above, over the years, there is a possibility that
- Your financial circumstances may have changed (for various reasons):
- Inflation has inched up
- Your outlook towards money has changed
- Risk profile has been altered
- The risk-return expectations have changed
- Investment objectives today are different
- You wish to adopt a change in investment style, and/or
- You may be close to achieving your financial goal/s
The aforesaid circumstance also needs you to revisit your asset allocation when you first began your investment journey, and therefore, portfolio rebalancing may be necessary. Portfolio rebalancing is the process of buying and selling assets to bring a portfolio back to its intended asset allocation. The decision to buy, hold, or sell the investments needs to be made on a rational, scientific and unbiased approach with thorough research and analysis, and not arbitrarily.
Here's what you need to check when reviewing your mutual fund portfolio:
- Check the asset-wise allocation between equity-oriented, debt-oriented and hybrid funds (considering your risk profile, broader investment objective, financial goals, and time to achieve the envisioned financial goals)
- Within the categories (equity, debt, and hybrid), the exposure to sub-categories viz. Large-cap Fund, Large & Mid-cap Fund, Mid-cap, Small-cap Fund, Multi-cap Fund, value style, dividend yield, Liquid Fund, Ultra Short Duration Fund, Medium Duration, Long Duration, gold funds, etc.
- What is your fund house or AMC-wise exposure. Ideally, the allocation to one AMC should not be high.
- What is the sector-wise and company-wise allocation to recognise the portfolio characteristics and the possible reasons for underperformance or outperformance.
- The quantitative aspects, such as returns, risk ratios, risk-adjusted returns, performance across market cycles, expense ratios, etc.
- The credentials of the fund manager (and his team), the proportion of total AUM of the fund house actually performing, and the investment process & system at the fund house, among a host of others.
- The risk analysis of the entire mutual fund portfolio based on the above, and take timely actions, i.e. buy, hold and sell. And in case of 'Sell' calls or switches, even assess the exit load impact.
The objective of this exercise is to take a course correction and rejig the portfolio constituents, whereby you hold among the best and suitably schemes within each asset class (equity, debt, gold, and silver) and weed out the duds, whereby it could boost your portfolio returns and handle risk.
Timely actions on your mutual fund portfolio can help it to well-align it with your risk profile, asset allocation, and accomplish the envisioned financial goals. Ideally, make it a point to review the performance of your portfolio at least once a year.
A mutual fund portfolio review, when done intelligently, can adduce the following benefits:
- Replace underperforming and unsuitable schemes with more suitable and better-performing ones
- Result in portfolio consolidation and rebalancing, paying heed to asset allocation
- Align investments as per your risk profile, investment objective, envisioned financial goals, and the time in hand to achieve those goals
- Ensures optimal structuring and diversification of the portfolio
- Potentially achieve the envisioned financial goals If you do not possess the skill to do a mutual fund portfolio review, do not hesitate to seek the help of a SEBI-registered investment adviser.
Happy investing.
Disclaimer: The views expressed in this article are solely those of the author and do not necessarily reflect the opinion of NDTV Profit or its affiliates. Readers are advised to conduct their own research or consult a qualified professional before making any investment or business decisions. NDTV Profit does not guarantee the accuracy, completeness, or reliability of the information presented in this article.
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