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Should I exit a fund if its rating has dropped to three stars?

Dhirendra Kumar tells what you should do if the rating of your fund slips


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The rating of my fund has recently downgraded to three from four stars. Should I exit?
- Akhil

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The rating has not been downgraded. The fund has not done well so it has earned a lower rating. I don't think you should jump on the change of a rating. Five star to four star, you should not worry. Four star to three star, keep an eye. It also depends on the age of the fund. I would say, a fund which is relatively young, only four or five years old, and it slips from five star to four star and then to three star in quick succession, you should not allow it more time. Wait for three to six months and take a call. If a fund has done very well in the last 15 to 20 years, may be allow it a year or two years' time and during this period keep an eye that the fund manager is still there. That's about it. Don't consider exiting the fund if it has simply slipped from four to three stars.

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