Mosttimes our use of heuristics, particularly in investing, could turn detrimental. Investors tend to view a short video or read some material without knowing the context leading to misunderstanding.

Such activities could add on to the already inherent biases and beliefs compounding the situation to worse. This is the reason why one must always device a plan i.e., why the investment is being made - the goal, the timelines and most critically the risk appetite.

For instance, some investors find that their portfolios have 10 or even 12 funds, particularly when the markets are underperforming. They must have read or seen that a model portfolio should've only a certain number of funds and so they freak at their 'bulged' portfolio. The natural reaction that triggers is to act and clean up the portfolio. But is such an action required or even such a reaction warranted?

This is something that must be deliberated not from the prism of how many funds but how are they messing up or not with initial goal or plan. The first and foremost is to see the overlap of funds. Remember that we don't know which funds do well and when they would do well into the future. The better way is to avoid funds which have too much overlap with the others in the portfolio.

Another common practice is about having one fund from each category. There's nothing right and wrong or for that matter the best or the only way in investing. So, having two divergent funds i.e., with philosophies and portfolios, in the same category isn't wild, it could be even wise. As I mentioned no one knows which will click in the future, with absolute certainty. It could be a good hedge that you end up in either of the two alternate future realities.

When an investor replaces a systematic investment in a fund to another, as it goes through a lean phase, it could hurt them later. Each fund goes through a cycle and not all funds perform at every point. So, interrupting the compounding is a major mistake, especially if the investment is for a year or even lesser. When a SIP completes one year, it means that only the first installment has completed a period of 12 months in the market, the rest have spent less than a year. So, ideally, a SIP could be evaluated after a five-year period, at the least after three years.

Of course, not every investment turns out to be as fruitful as intended. And hence, the creation of portfolio so that your bets are spread across multiple opportunities that could overall still enable you to achieve decent realistic returns. Also, equity markets could remain irrational for longer periods and so you might face the brunt of underperformance even for two years.

The only factor in our control is to re-evaluate whether the fund is behaving to their declared objective, philosophy and style. If there's a disconnect here, then that's the time we need to relook at continuing to invest in that fund. Also, switching between or redeeming funds add costs i.e., through exit loads, if any and taxes. So, such activities of realignment or reallocation must be done after a thorough thought.

The only thing that should matter as an investor is to know why they have invested in these funds, at the first place. If the answer is an affirmative, then they should look for no other validation. Especially, the ones from the social sphere. It so happens that one of your friends or relatives had invested in a particular fund or type of portfolio in the past with good outcome and if you were to compare then it could lead to disastrous results. The timelines, goals and even the timing could go awry with you while imitating or copying that portfolio or allocation. For instance, if your goal is in three years' time then betting on the best performing equity fund wouldn't probably help. If chance, is a strategy then everything and anything will work but for all other things then the following is the only way out. Arguably, the best way to consider building up the portfolio is to work backwards i.e., identifying your goals, analysing your risk profile, understanding your tolerance, defining the timelines and then creating a portfolio. Once this is in place, most of the other things would fall in line. This template also helps to realign at various intervals of investing.