Industry experts advise evaluating lagging mutual funds against peer benchmarks over one to two years, particularly when category conditions are otherwise favorable. Investors should be wary of New Fund Offers, as a baseline Rs 10 net asset value does not indicate cheaper valuation or superior growth potential. Furthermore, DIY investors frequently suffer from portfolio drift and unneeded concentration by purchasing overlapping schemes. Rebalancing should be handled carefully by redirecting fresh capital into underrepresented assets while accounting for exit loads and taxes.
Key points
Investors should reallocate capital toward funds with sustained track records rather than…: Investors should reallocate capital toward funds with sustained track records rather than chasing short-term returns.
Drifted portfolios should be corrected by steering fresh inflows into underrepresented as…: Drifted portfolios should be corrected by steering fresh inflows into underrepresented asset categories.
Portfolio cleanups require careful planning to account for applicable taxes and fund exit…: Portfolio cleanups require careful planning to account for applicable taxes and fund exit loads before redeeming assets.
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Investors should assess whether underperformance stems from temporary market conditions or a sustained decline in the fund’s investment process by examining its performance against benchmarks and peers over multiple periods.
Shivam Pathak, CFP and Founder of Asset Elixir told ETMutualFunds that if a fund consistently underperforms its benchmark and peers over 1-2 years, investors should review the reasons and if the underperformance reflects persistent issues rather than a temporary market cycle, it may be better to consider a more consistent alternative.
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Hrishikesh Palve, Director, Anand Rathi Wealth Limited shared with ETMutualFunds that investors should first identify the reason behind a fund’s underperformance before deciding to exit like underperformance due to a broader market correction, a change in category leadership, fund’s investment style going out of favour, or a change in the fund management team or investment strategy.
“However, if a fund consistently underperforms its benchmark and peers over multiple years, it requires a closer review. Investors should assess whether the…
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