Reeavluate your funds every year — and do what???

POSTED BY Ram Mohan ON March 9, 2012 5:13 pm COMMENTS (19)


I came across this very interesting article in Valuesearchonline —

I paraphrase a small bit from there:

“It is not enough to be regular with investments; you should also track the performance of the funds you invest in and gauge its progress at least once a year before continuing your investments in them.”

Ok, so let’s assume I take that advice and I identify for example HDFC Top 200 to be my retirement fund — I invest 10,000 Pm for a year. Now the fund is good and I continue. Let’s say after 3 or 4 years, the fund starts deteriorating. So does that mean, I just park the amount there and start SIP in an alternate fund which gives better returns (or) take out the money and put in a better fund and start a new SIP (or) simply just ignore and continue with my investing since I’m investing for 20 years or so….

Experts advise on how you can work on this situation is much appreciated



19 replies on this article “Reeavluate your funds every year — and do what???”

  1. Venkatesh says:

    I have two more queries to clarify:

    1) If a SIPed fund is showing profit (say 15% or 20%), can I sell the units and plough back the money into the same fund? Is it against the rule of the SIP?

    2) Most of the equity funds (even some 4/5 star rated) are showing negative returns in the last year, due to the market conditions. In this situation, does it make sense to exit the fund? Or should I continue the SIP and wait for the returns to show profit?

    Sorry for my ignorance, if I asked anything wrong here.

    1. Dear Venkatesh, what do you want to achieve this kind of profit booking & reinvesting in the same fund. If the idea is to protect the gains & thus selling & investing the profit part in a debt fund, then it’s ok but are you not investing for a long term goal?

      If you are investing for a long term goal say 10+ years, the intermittent volatility or low returns should not bother you.

      No, you should not say sorry or feel bad for your ignorance. After all the very basic purpose of this forum is to answer your questions.



  2. Sunnydoc says:


    I had this same question in mind so thanks for posting this and the detailed replies. I had another query related to this. I have now stopped SIPs in two of my underperforming small and midcap mutual funds (IDFC Sterling Equity and DSPBR Small and Midcap). I have started a new SIP in IDFC Premier Equity Plan A and Franklin India Bluechip instead.

    I cannot transfer out the money from my stopped SIPs as they will incur an exit load. (I had started these SIPs in May last year and they will be stopped from April onwards).

    So how do I go about it?

    I was thinking whether it would be worth waiting another 1 year and just keep the money parked in these funds to see if they bounce back, as they are still above their benchmark index. After one year the exit load also won’t be applicable so it will be easy for me to make a lumpsum withdrawal and park it in my performing funds.

    Or should I do a systematic withdrawal plan and just forget about the poor returns as a bad dream? (will I be charged exit load too?)

    So every year I will have to do this same exercise I presume. It sounds very cumbersome and complicated but it is my hard earned money so I need to do it. Is there a simpler way to go about this yearly MF portfolio checking and readjustments?


    1. Dear sunnydoc, if the reason of stopping the SIPs is under performance, you should not worry about the exit load & make the switch complete by redeeming all units & switching to the chosen funds.



      1. Sunnydoc says:

        Dear Ashal,

        Thanks for the reply.

        My question is that what if the funds are not underperforming that badly also? And that these poor returns are because of the market lows itself? Do I still exit and incur the exit loads?

        My funds in question are still doing better than their benchmark index, but lesser than their peer MFs. (They were 5 star earlier, but now one is 4 and the other is 3 star)

        And what about the SWP plan as an exit strategy to avoid the exit loads? Is it worth the trouble?

        What is the actual duration that one must wait before deciding that the fund should no longer be continued? And how can a person repeat this whole evaluation process every year? Now I understand why it is important to have less funds in your portfolio. I had 5 including a balanced fund.

        Hoping for detailed explanation as I am a bit slow to understand.


        1. Dear sunnydoc, the answer lies in your own query. You have invested in funds which were 5 star once upon a time & now are 4 & 3 star. So what’s the guarantee that the current 5 star ‘ll remain so & not your existing funds ‘ll climb up the ladder again.

          If your fund is performing better than it’s benchmark index, you should not worry for the under performance against it’s peers.

          SWP or no SWP, it ‘ll depend upon individual’s need so no direct answer for it.

          Please ask more & more.



          1. Sunnydoc says:

            Dear Ashal,

            Thanks for the reply. I was thinking of doing a systematic withdrawal plan for 2 reasons.

            One was so that I can give the funds a little more time to recover, say about 3-4 months. The other was so that I can avoid the exit load penalty. Once I systematically withdraw, I will re invest that money back into my existing funds. Is my approach correct?

            Alternatively, I am even OK with waiting for another 1 year to go by, and then withdraw the whole amount as a lumpsum and park it into my existing funds. That way, I am spared the hassle of SWP, exit loads and I can also give the fund a 1 year chance to recover, if at all. I understand that I may incur further loss too. By the way, I have just stopped SIPs in these ‘laggard’ funds, but not exited.


          2. Dear Sunnydoc, you may adopt your own way to weed out the under performer. After all there is no clear cut way to success. Each individual should try his own way. There is nothing wrong in your approach. Please go ahead.



  3. ainvest says:

    I had same question in my mind…and i am sure many readers might have this question…
    in fact, this is something important and not many people have written any information on it.
    all website keep talking about evaluating the performance of fund on years basis and take corrective actions after review.
    but NOBODY wrote anything on exact ways to deal with it.
    manish can think about a post on this topic sometime in future…

    1. Dear Ainvest, please read the replies above. A general method may be to track the performance & making our own cut off of 5 or 6 or 7 quarters trailing performance to category average as well as benchmark indices.

      Hope It ‘ll be easy now for you to decide to make an exit call.



  4. Dear Bharat, thanks for replaying on my behalf.

    Dear Rmohan, I hope now the things are clear to you.



    1. says:

      Yes Ashal sir, nice and clear. I think my doubts are cleared

  5. bharat shah says:

    i think, ashal replied for point no.1 and that is essence. for point no.2 , when we are referring compounding for any goal/wealth creation, we are referring it for whole portfolio of 3-4-5 funds for the whole period of the investment for the goal, and we are replacing under performing fund by good one with hope to reach our goal in time. and there is no extra fund as such , as new one is replacing old, or even you can switch the fund to any of your good fund,which eventually reduce one fund.
    for point no.3 there is no question of transferring from equity to debt, unless you are doing asset balancing. in case of necessity of asset balancing,which most probably would not be required, it is o.k

  6. Dear Rmohan, when you are exiting from a fund for underperformance, the switching should be in one lump sum as the money was already in an Eq. fund & you are not investing fresh money.

    Paying STCG Tax on some amount is not bad if the reason is underperformance & for this very same reason, I hope the STCG amount & tax there on itself ‘ll be on lower side already.



    1. says:

      HI Ashal,

      But what about the problem of doing a lumpsum at the point into a new equity? When so many people here asks questions that I want to invest 1 Lac or 5 Lacs in equity, the general answer is to put in a debt fund and do STP. Why a different treatment here?

      Just to clarify, I’m not saying take the amount, put in a debt and do 10K STP and leave it at that. I’m saying do a STP PLUS continue your monthly SIP in the new fund…

      1. Dear Rmohan, please my reply again. If it’s fresh money, SIP or STP is required as we do not know the point to enter.

        In case of switching from underperformer to performer, we are merely changing the vehicle & not starting the journey afresh. So lump sum switching in this case is the need of the hour.

        Hope I’m clear to you.



  7. says:

    Additional follow up question. If what experts say are right and you need to switch funds then what do you do with the money you’ve made in the underperforming mutual fund? Assume that your decision is perfect and you need to exit the fund….

    a) If you redeem and put it in bulk in the new fund, you’re timing the market and cannot be good. Also you’re paying tax on the applicable short term capital gains

    b) If you leave it like that, maybe you lose out on compounding and you add 1 extra fund to keep track of, you over diversify etc

    c) Final point. If you withdraw and put money in debt fund, here again you’re paying tax on short term gains and you’re possibly not getting enough return for the money. Maybe (b) may give a better return than this

    I personally prefer (c) losing some of the gains, but then again, maybe (b) is better from a tax perspective.

    Can experts throw their opinion here?

  8. bharat shah says:

    yes, There is no unique formula for understanding poor performing fund to exit., but some suggest that if the fund is under performing its underlying index and its group averages continuously for 4-6 quarters , it is time to change for better mf. the criteria is to be decided personally, i think. also one may co relate the underperforance with change of fund manager, and may hasten the change.

  9. says:

    Hi Ram,

    From what i have learned from all the great people in the industry and also logically, it would be wise to take the amount out from poor performing fund(s), HDFC TOP 200, in this case, and invest in better performing MF at that point of time.

    Of course, it is very difficult to understand when to discontinue and convince ourselves to redeem the units from mutual fund where we were contributing because it was good fund when we started investing. There is no unique formula for understanding poor performing fund to exit.

    Chandrakant D.

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