Stay Invested :

It is but a common tendency that investors become restless when the schemes they invested into do not perform as per their expectations. One should bear in mind that a scheme may not perform in the short term but may give a better return in the long term. So it is important that investors take a decision of moving out of a scheme only after observing the performance of the scheme vis a vis a benchmark or a peer at least for a period of 8 quarters. The following points need to be considered while shifting between the Funds:

  • Does the scheme return consistently beating the inflation?
  • Does the existing investment outperforming against benchmark/Other Peers?
  • How long did you stay invested in the current scheme?
  • Associated Cost & Reinvestment risks?
  1. Does the scheme return consistently beating the inflation: The ultimate objective of investing in Equities via Mutual Fund route is to beat the inflation. If your scheme returns are not beating the inflation consistently, then you may consider moving to a better performing scheme with similar investment objectives.
  2. Does the existing investment outperforming against benchmarks /Other Peers: Quite often we come across investors who are unduly worried about the performance of their MF schemes. The non-performance could only be a short time phenomenon. It is not every time your fund’s performance would be the best among the categories. For Example: In a Cricket match, it is not always that Australia would win every international tournament. At times they also underperform in the tournaments and it doesn’t mean that they will not perform well in future. Similarly in Capital Markets, every day is a new match and every quarter a series. One may need to consider moving into a better performing scheme only when the scheme performance is consistently below the category average/benchmark.
  3. How long did you stay invested in current scheme: Timing the market is a very difficult art. Instead time in the market is within the investors’ control. It is observed that long term investments ride off volatility and give steady returns. At times we see investors who had invested six months back that too in SIP mode, get restless as their investments are turning negative or underperforming other peers. In mutual funds one needs to stay with a scheme for at least 2 years. Even after 2 years if the scheme continues to underperform the peers/benchmark then one should exit the scheme and move to a better performing one.

Associated Cost & Reinvestment risk: Frequent churning of the portfolio is not advised. Whenever investors are thinking of shifting the investments from one fund/scheme to another fund/scheme, they need to understand the most important risk i.e. Reinvestment risk associated with it. Also, he should note the cost associated with it in the form of Exit loads. The time lag from redeeming and reinvesting may sometimes alter the NAVs such that one may end up reinvesting at a higher NAV thus impacting the overall performance of the portfolio. There were many instances when the scheme from which one has exited starts performing well and the one entered not doing well. So it is paramount that one should track the performance at least for 6 quarters before taking any decision.

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