How should you address underperforming funds – Panic or patience?

When it comes to mutual fund investments, many investors tend to panic when they see their investment underperforming. While is natural to worry when you see your equity funds underperforming, there is a better way to deal with it. Here’s how patience in times of market volatility can help you in the long run.

• Table of contents

1. Put the underperformance in perspective
2. Focus on your financial goals.
3. Changes in investment strategy or fund management.
4. Check your investment portfolio.
5. Seek financial advice.
6. Bajaj Finserv AMC

Put the underperformance in perspective

The foremost thing you must do when you spot underperforming funds in your portfolio is to get a holistic view. The key is to differentiate between short-term fluctuations and sustained underperformance.

So, you need to check if the equity funds are:

• Underperforming in the short term.
• Underperforming against a benchmark.
• Underperforming over a significant period.
• Underperforming as compared to peers.

Take a deeper look at the asset and evaluate the performance over multiple timeframes and from different angles before taking any action. Do not proceed to do anything until you have identified the timeframe as well as the reason behind the poor performance of your equity mutual funds.

Focus on your financial goals.

The best thing you can do when building your investment portfolio is to map each investment to a clear, well-defined financial goal. It could be as fun as funding a foreign trip or as serious as creating a retirement corpus. If you have made an investment for creating wealth for post-retirement life, you need to stay calm when you spot short-term underperformance. You may have to review your investment more often just to get a hang of how things are going but you need not panic.

Changes in investment strategy or fund management.

The performance of your mutual fund depends on the investment strategy of the fund as well as the investment decisions taken by your fund manager. A change in investment strategy or fund management can have serious implications on the performance of your equity funds. Therefore, you must periodically check the website of your Asset Management Company (AMC) or scheme information documents to dig deeper into this issue. If underperformance is linked to these fundamental issues, you may have to re-evaluate your investment. Then, you can set up a timeline to divert the investment into a better scheme.

Check your investment portfolio.

If one of your investments is not performing well in the short term, it may not be a big deal. However, you must keep an eye on your investment portfolio to make sure that one bad-performing investment does not adversely affect your whole portfolio, especially in the long run. Diversify your investment among different asset classes, if you must, to find a balance. You may have to alter your overall investment strategy, but it will be worth it.

Seek financial advice.

While everyone needs a level of street-smartness when it comes to choosing a suitable equity mutual funds, dealing with underperforming equity funds is a different ballgame altogether. Seek professional advice from a finance expert to effectively deal with underperforming funds. They can review your portfolio and help you optimise your investment journey. This will ensure that you can sail smoothly even when some of your investments do not perform as expected.

In conclusion, you must be patient when faced with underperforming funds. In certain cases, it may just be a short-term fluctuation arising out of market movements and you may only need to review your investment more frequently. It is also helpful to remember that the market has the potential to deliver relatively better returns in the long run. In cases when the underperformance may be sustained over a considerable period of time, you can turn to a financial expert for guidance or explore alternatives on your own.

Bajaj Finserv AMC

Bajaj Finserv AMC has launched schemes including a flexi cap fund, liquid fund, overnight fund, arbitrage fund, and money market fund. Each of these investment options provides professional management of the invested amount. However, it is important for investors to assess their investment objectives, risk tolerance, and consult a financial advisor before making any mutual fund investments.

FAQs:

What constitutes an underperforming fund, and how can I identify one?

An underperforming fund is one that consistently lags behind its benchmark in terms of returns. You can identify it by comparing its performance over different time periods with appropriate benchmarks.

Is it advisable to redeem an underperforming fund immediately?

Not necessarily. Evaluate why the fund is underperforming. If it's due to short-term market fluctuations or a specific economic situation, consider patience. However, if there are long-term issues with the fund's strategy or management, it may be wise to explore better-performing alternatives.

What strategies can I use to address underperforming funds?

You can start by reviewing your investment goals and risk tolerance. If the underperforming fund no longer aligns with your objectives, consider redeeming and reinvesting in a better option. Alternatively, consult a financial advisor for guidance.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully. This document should not be treated as endorsement of the views/opinions or as investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.