I was investing in UTI Dividend Yield Fund via SIP since August 2011. But due to low returns from the fund and also its market-cap bias overlapping with some other funds in my portfolio, I decided to stop the SIP in October 2014. In such a situation, when we move to a better-performing fund, won't the new fund lose out on the averaging and compounding effect, since we're starting from the beginning?
In general, how should we move funds/SIPs from the existing fund to a better-performing fund?
- Keshav Nair
UTI Dividend Yield is a sound fund for conservative investors who would like to earn a steady return from high dividend-paying companies. The fund's recent underperformance is not a reason to exit because dividend-yield funds typically invest in mature businesses that may not take off in bull markets.
Having said this, when you switch from one equity fund to another, you don't lose out on the benefits of compounding. As your switch will be at the fund's current NAV, it would have already earned you a compounded return for many years. If you would still like to quit your existing scheme, you can do an STP, or systematic transfer plan, from your existing fund into the new fund. The STP will allow you to transfer your money from one scheme to another in installments. This ensures that your exit or entry does not suffer due to bad timing.
This article was originally published on August 26, 2015.
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