My fund has been underperforming for more than a year now. Should I sell it or just stop new contributions?
- Narasimhan
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I hope you are taking the complete picture into consideration when looking at the underperformance of your fund. While analysing any fund, consider the difference between a fund underperforming and a fund simply falling. For example, there can be situations when a fund falls by say 5 per cent where as the market falls by 10 per cent, here the fund in reality has done well. There can be a possibility that your fund is providing negative returns but it might be beating its benchmark and/or its peers across category. So one must look at the real underperformance of a fund.
Also, one year time period may not be good enough as it is important to experience a full market cycle. There are phases in the market when many funds do poorly and that is exactly the reason why they also do very well in a reversal of the market. 2017 was a period when smallcap funds went up by 50 per cent on an average and then the multicaps went up by 35 per cent. So if you had minus 10 per cent in 2018, it is just moderating your return. It is advisable to take a longer time frame to look at the real underperformance and act accordingly.