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Why are AMCs that used to have good funds now struggling?

Ashutosh Gupta highlights why investors should not be worried about short phases of underperformance of a fund and rather look at its long-term performance

I have been investing across AMCs from a diversification perspective. But I have been observing that the schemes of three out of four, including HDFC, Aditya Birla Sun Life and Franklin, have not been performing. Only ICICI has been a little better. What is the reason? These AMCs mostly had good funds.
- Yogendra Date

For mutual funds, it is not unusual to go through the phases of bad performance. When a fund manager builds a portfolio, he/she selects a few stocks and builds out a portfolio with the hope that at some point of time, the markets would realise their potentials and these stocks would get rewarded through price appreciation. But then, the markets are under no obligation to start rewarding right from the day when the fund manager builds this position. It could take some time before the stock price rises, which would be a testing phase for investors. In several cases, a fund manager can also go wrong with his/her call and then at some time, he/she would have to acknowledge that and make amends to the portfolio. So, overall I'd say that some phases of underperformance by funds should not be much unnerving for a mutual fund investor. Having said that, sustained underperformance, which should not be a matter of a few months or quarters but several years, should be a cause of concern and invite closer scrutiny and in some cases, may even call for a need to switch to better performing funds.