What to do with a non-performing fund?

If a fund is not performing for more than a year, the advice is to switch to another fund. Please help me to understand whether it means taking all the money from the scheme and investing in another scheme or just stopping the Systematic Investment Plan (SIP) in a non-performing fund?
- Sandeep

If a mutual fund scheme is under-performing its benchmark and its peers for a year or more, you should try to find out the reason behind it. Sometimes a fund manager may go against the accepted wisdom in the market and take contrarian calls. This can result in lackluster performance during a short period. However, the fund would bounce back when the fund manager is proved right. If you find the reason given by the fund house or the fund manager for the non-performance unconvincing, you should redeem your investment in the scheme and shift the entire money to a better-performing scheme. There is no point in keeping the money with a bad performer, so don't just stop your SIP. Take your investments out of it and invest the money in a better-performing scheme.

This article was originally published on January 05, 2016.