Hello Readers!
At the time investors plan their investment in mutual funds, after good research, they pick out the fund schemes with good consistency in performance for their investment. They pick out funds after a good analysis so that they do not end up investing in an underperforming fund.
Instead of that many investors find themselves investing in an underperforming fund every now and then? Why this happens even after a good research and analysis? Well, this happens because no scheme can forever lead the market and stay on the topper’s position. There would be some correction phases in the market during the investment period, and in this period the fund would underperform its benchmark or even its category.
Should You Redeem Just After The Fund Underperforms?
Simply no, it is never advisable to sell or redeem your investments as soon as it starts under-performing its category or benchmark. Underperformance is inevitable but temporary. It doesn’t last long. Moreover, the reason behind the under-performance of a fund is many. Sometimes the fund manager might have taken different bets than the market, to generate good returns. And due to this currently, the fund is underperforming, but it may deliver good results after some time. This is the fact that restrict an investor to sell their schemes the moment it started underperforming.
Find Out If The Fund Is Underperforming Its Category Or Its Benchmark?
Before you plan to redeem your underperforming fund, it is a must for you to know the reason behind its underperformance. Analyze and review your investment portfolio, find out if the funds are underperforming its benchmark or its category. If it is underperforming on both the scales that are its benchmark and its category, then only I suggest you move to the next step. And if this is not the case, then I suggest you stay calm and give proper time to your fund scheme. If the underperformance of the funds continues for a long-term say more than a year or two, then it is a matter for consideration.
Search About The Ideologies Followed By The Fund Manager
Take out the information about the strategies and ideologies used by the fund manager of that specific fund, to manage the investment in the fund. For this, you can go through newspapers, articles, the fund manager’s interview, and through internet sources. Gathering information about the strategies used by your fund’s fund manager will help you find out the reason behind the underperformance of the fund.
Every fund manager has different views and perspectives on the market. sometimes the fund may underperform because of the strategies used by the fund manager like the scheme is not keeping pace with its benchmark because the fund manager has chosen stocks outside the benchmark.
If you find out that the reason behind the underperformance of the fund is predictable, and you are convinced with the strategies used by the fund manager, then stay calm and continue your investment in the fund.
In case if you are not convinced completely, then in that situation, go stopping your SIP, then redeem your investment. Do not forget to reinvest the redemption amount to a better performer in the same category, as you haven’t reached your goal yet and the objective of your investment is still unaccomplished.
Last but not the least, never take steps like immediate redemption or panic redemption. These are knee-jerk reactions, following them might convert the temporary loos in your fund into a permanent one. So, always before you think to redeem your underperforming fund, do find out the full details behind its underperformance, analyze them, and then reach a solution.
For any kind of query, you can contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.
Happy Investing!
(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).