I have a query about switching out of mutual funds which are under-performing. I have heard a number of times that one must track fund performance and in case it is not performing, one should switch to different fund. My query is -
Should I pull all the money out and invest in a new fund?
Or let the current investment stay and make fresh investments into a new fund?
- Girish Sutar
We usually advise that the decision to buy or sell funds in your portfolio should be based on how they contribute to your long term financial goals. Yes, it is always beneficial to track fund performance so that you don't keep holding on to very poorly performing funds. However, you should clearly define what poor performance is. You should consider a fund a poor performer only if it lags its benchmark over an extended period of time. It is also necessary to look at performance over longer time frames of say 4-5 years.
If a fund performs poorly for a short while due to market conditions, this should not be the cue to switch out. Therefore, if you own a fund that has underperformed its benchmark over 3 or 5 years you can consider switching to a better performer and also making new investments in the better fund.
This article was originally published on December 30, 2014.
Ask Value Research 
New episodes every Friday 
New Process Alert 
Seems like you've uploaded a wrong QR code. Please upload the QR code downloaded from MF Central platform.
