Nifty closed the month of November 2024 above 24,000 levels. Though the market has consolidated from the bottom, there are concerns about economic growth as India’s GDP growth slumped to 5.4% in Q2 FY25 from 6.7% growth recorded in Q1 of the year (source: NSO as of 29th November 2024). At the same time, the deep correction in the market has brought valuations back to reasonable levels. As we enter the final month of CY 2024, this is a good time to review the performance and suitability of your portfolio and plan for any re-adjustments, if required.

Why do you need to review your portfolio?

It is good financial hygiene to review your portfolio at periodic intervals so that your investments remain aligned with changing goals and objectives. A portfolio review has to be done for the following reasons:

• ·       Financial goals may have changed: The end of the year is a good time to take a look at how your financial goals may have changed during the year. The arrival of a new member in the family, children going off to join higher studies, a special occasion on the cards needing more funds, etc. all call for a realignment of your investment portfolio to these changed goals.

• ·       Investments may need to be replenished: While realigning your portfolio to your changed goals, you may find that your investments are not enough and may need replenishment in the form of added SIPs or top-ups.

• ·       Review of goals that have reached their tenure: Some goals like saving up for a new car might have reached their tenure and you would need to plan for the withdrawal of such funds.

• ·       Realigning your investments with the changed goals: Financial goals have different time frames and with changes in them and your age, it is important to review the portfolio. At the time of your yearly portfolio review, you can review the changing nature of your goals and reallocate the assets to suit your needs as well as your risk appetite.

• ·       Review and reallocate funds from non-performing schemes to better-performing ones: The end-of-the-year review can help you target the non-performing funds and maybe think of reallocating your investments to better-performing ones. However, exercise caution while doing this as evaluating the returns from funds during periods of volatility is not the best way to review their performance. You should measure returns from your investments over sufficiently long terms, e.g. 3 years or more.

• ·     Review your asset allocation: The market value of each asset class changes over time due to different returns. This can make your asset allocation drift away from your target or desired asset allocation. If your asset allocation deviates significantly from your target allocation, then your portfolio risk may not be in sync with your risk appetite. You should review your asset allocation and rebalance your portfolio.

• ·       Tax Planning: Tax planning is an important element of a sound financial plan. If you have already not done it, then December is a good time to review your tax obligations as it gives you just enough time till March when the new financial year starts. Review your mutual funds transactions made during the year paying close attention to any capital gains and your tax obligations arising out of it. Any dividends received should be added to your income and taxed according to your income tax rate. Also, if you have opted for the Old Tax Regime then make sure your investments in tax-saving avenues are enough to claim the deductions under section 80C of the Income Tax Act 1961.

Conclusion

In this article, we have discussed why you need to review your portfolio and the steps you can take to stay aligned with the dynamic nature of the market while ensuring that you stay on track with your financial goals. Consult a mutual fund distributor or your financial planner if need help in reviewing your portfolio and make an action plan that can help you achieve your investment objectives. Please consult your financial advisor for all your investment decisions.