What should I do if fund’s poor results persist?

Poor results of a mutual fund may persist. And when it happens, it regularly trails other funds that invest in similar securities. It is indeed disheartening for an investor. Here the question arises whether to continue or discontinue with the fund delivering poor performance. However, there can be another situation when poor performance occurs due to the current market slump. Similarly, there can be several other reasons behind the same. In the tough times, even the best funds take a hit. Let us give you some idea why mutual funds fail.

Reasons behind the poor results

The consistency in the fund’s performance matters most here. There is nothing wrong with judging mutual funds based on past performance. However, one should look at the fund’s 3-year or 5-year action instead of the short term to be sure of its consistency.

A fund manager could be a fund’s backbone, and also a critical reason behind its failure. The funds with fund managers, who are consistently performing, are usually the best. If fund managers are changing very often, it could be a danger signal, and performance deteriorates.

Market uncertainty is an acceptable probability that can reflect in the fund’s performance. Here the markets refer to the stock market for equity funds and interest rate markets for debt funds. Market fluctuations may cause a recession, hike in interest rates, etc. that can affect your mutual fund investment as well.

There may be cases that the funds have liquidity crunches. It is about the AUM or merely the size of the fund, which is the total corpus that the fund can manage. This condition usually does not arise in case of a large size fund, with lots of money flowing into the same.

What should you do if fund’s poor results persist?

When it comes to your part that what you should do if the fund’s poor results persist, try to consider the following.

Define your risk appetite sharply

Find out how much exposure to risk you want to take in that situation, especially in high-risk products like mid-cap and small-cap schemes. If you are comfortable with moderate risk, you may increase your investments in the multi-cap or mid-cap schemes for stability in your mutual fund portfolio. Consult a mutual fund advisor for better insight. How much exposure you want to take will depend on the additional risk you are willing to bear.

Give it some time

The characteristics of the top funds are endurance during the downtimes and outperformance during the right times. It is primarily for the equity funds that sufficient time should be given for the fund to perform. It might not show results in the short term, but it has much potential in the long term.

Ramp up your investment in downmarket phase

Investors, who persist with continuing commitments, benefit in the long run. However, merely continuing may not be enough. If you want to benefit from a severe crash, consider ramping up your investments. In that case, either you top up existing SIPs or invest lump sums in a staggered manner. The higher amount will fetch a higher number of units at prevailing low prices if the downturn persists. When the market rebounds, higher sums will make a substantial difference to your return.

Study market conditions

It has been observed that the market slump sometimes continues over several months. If most equity mutual funds are offering negative returns, then you will find that your schemes are also reflecting the general trend. The period of fewer than 3 years is too short a period to assess the performance of your mutual funds. Stay focused on your long-term goal and try to continue with your investments.

When to stop investing?

You must always review the performance of your schemes and stop putting money in poor-performing funds if reviewed results indicate the same. The poor performance is usually a reflection of the asset management company’s relative expertise. Consider replacing it if even after a certain period its poor performance persists.

Concluding note…

Investing involves risk. The prices of the funds may go up or down, and there may be a substantial or total loss of investment in certain circumstances. The past performance of the fund does not necessarily indicate the fund’s future or likely performance. When you are undecided, do consult your professional advisors to ensure that correct decisions are made in this regard.

That’s why Comparte Investment team asks do you have “Nivesh Ki Aadat”.

With this one can say “Mutual Fund Sahi hai”, so let me do Nivesh / Enquire