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Wise To Cut Losses

It is better to cut losses & exit an underperforming fund rather than wait for a turnaround…

On January 8, 2008 I purchased units worth Rs 90,000 in Principal Tax Saving Fund. The current value of this investment is Rs 30,000. What should I do with this investment?- Tusharkanti Bhattacharya

You may have actually caught this investment close to the peak that the markets witnessed in January 2008 before the crash. Moreover, making lump sum investments is not the best of ways to invest in mutual funds. When emotions become the overriding reason to stay invested in a poorly faring fund, it could land you in a state where you stand to lose more money in the long run.
This fund has earned a negative 2.21 per cent annualised return in the past three years and 7.94 per cent annualised return in the past five year, when several of its peers managed to turn around.
You will be missing out on other opportunities if you are waiting for notional gains in this fund and waiting for it to improve. It will be better for you to cut your losses and exit this fund and invest in some other fund. You can learn a lesson from this experience. Regularly track the performance of your funds. This way you can note the dip in their performance in comparison to the benchmark and its peers. If a fund is continuously lagging in performance and losing on the star ratings, it is wiser to head for the exit.

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