Downslide in equity funds | Value Research Don’t let marginal underperformance disturb your long-term equity investments....
Ask Value Research

Downslide in equity funds

Don’t let marginal underperformance disturb your long-term equity investments....

I started an SIP of Rs 1000 each in HDFC Balanced Fund and ICICI Prudential Dynamic Fund, six months back. Both funds have performed very well in the past. Figures show that both the funds have underperformed as compared to their benchmark. This underperformance continues from last 1-2 years. Are these funds valuable and good? Should I continue my SIP in both of them? HDFC’s performance has been consistent since inception. Why is there a underperformance in its funds?
-Kapil Talreja

You are investing in well-rated funds that have a compelling track record. Both are large funds with hefty assets under management and you should not be unsettled with short-term underperformance. The reason for recent underperformance can be attributed to the value investing approach that these funds follow. They keep away from relatively pricey stocks and big market movers.

In their respective categories, they have been in the top band in three-years and are best performing funds on a five-year basis.

You have been investing only for six months. Equity investments give good returns over long-term. Also, short-term ups-and-downs are a nature of equity investment.

HDFC Balanced has given returns higher than the category since last five years, barring 2012 when there was a negligible underperformance of 0.14 per cent.

ICICI Prudential Dynamic fund has also performed similarly as its last underperformance against the category was in 2009. Last year it gave positive returns a little more than the category average.

The funds’ marginal underperformance against other funds in the category might be disappointing but one should not be perturbed by this. You should consider selling a fund only if it substantially slips on performance relative to peers over a sustained period. This will also reflect in Value Research's Fund Rating.

Have a different question in mind? Ask us

Other Categories