As 2022 draws to an end, here's why you should check where your investment portfolio stands

In just a few days, 2022 will be over. While this is a time to celebrate the holiday season with friends and family, it is also crucial from a financial perspective. At this time, you must also look back and reflect on where your investment portfolio stands. Accordingly, you can take the necessary steps to ensure that your investments are on the right track in the new year.

The primary reason for investing money is to build a corpus that can help to achieve your financial goals. Once you invest your money, you need to keep track of how your investment portfolio is performing.

"This is because over time, circumstances change, i.e., your child decides to pursue a course abroad rather than in India. This would mean that you will have to invest more so that you have sufficient money to fund his/her dreams. Your previous portfolio allocation would not work for this requirement, and you would need to alter the same. This can result in higher monthly investments and different asset allocations, too," said Anup Bansal, Chief Business Officer at Scripbox in an exclusive interaction with CNBC-TV18.com.

The bottom line is that your investment portfolio needs to align with your goals and current financial condition. As you regularly monitor your portfolio, you can eliminate uncertainty and the chances of any miss arising due to your circumstances or market changes.

Three parameters play crucial roles here: i) returns, ii) risk taken, and iii) resultant asset allocation.

Your investment portfolio needs to earn inflation-beating returns. You should also check for inflation-adjusted returns to clearly understand where you stand. Asset allocation and associated risk are knitted together as asset allocation is undertaken based on your risk tolerance level.

"In addition to risk, your goals and time to maturity are also considered for allocating funds to different asset classes. For the short term, debt instruments work better; for the long term, a mix of equity and debt can be a good option," Bansal told CNBC-TV18.com.

You can use certain parameters to keep a tab on your portfolio. This includes evaluating changes in the weight of one asset over another, the impact of market fluctuations on portfolio asset allocation, and whether the risk has increased or decreased.

"The year 2022 was quite volatile, with the market witnessing a large gap between high and low. This year the RBI decided to raise the interest rates by a significant amount to control inflation. At the same time, the US Fed picked an aggressive approach for the rate hikes, and the Indian Rupee weakened to an all-time low against the USD. Such changes would have directly impacted your investment portfolio, whether you are invested in equity or debt instruments. Your risk and returns also change considerably, which is a common impact, but you must rebalance it. The year-end is the perfect time for portfolio rebalancing," Bansal said.

Portfolio rebalancing refers to altering your portfolio via asset inclusion/exclusion/addition/reduction to ensure that your investments are in line with the desired allocation and that you are on track to achieve your financial goals.

"For portfolio rebalancing, you can choose from an array of methods. Percentage to the portfolio is one of such popularly used methods. In this method, the percentage range of each asset class is determined and the focus is on maintaining these weight percentages. For example, your investment portfolio has 50 percent equity and 50 percent debt with +/-7 percent as the range. Thus, your investment can deviate from 43 percent to 57 percent. If this range breaks, you need to alter and rebalance your portfolio to reach the initial level of 50:50," Bansal said.

It is best not to conduct the rebalancing exercise too frequently as a response to short-term market fluctuations and noise. The recommended frequency for rebalancing is 6 months to 1 year.