When should you exit a mutual fund if it is not giving good returns?— Experts decode (2024)

FAQs

When should you exit a mutual fund if it is not giving good returns?— Experts decode? ›

If there is no improvement in the next 4-8 quarters, then they can exit the fund.

If a fund consistently underperforms over multiple periods and fails to deliver satisfactory returns, consider exiting the investment. Research and select funds with a similar investment objective but better track records and performance history to redirect your investments.

However, if you have noticed significantly poor performance over the last two or more years, it may be time to cut your losses and move on. To help your decision, compare the fund's performance to a suitable benchmark or to similar funds. Exceptionally poor comparative performance should be a signal to sell the fund.

Do a Performance Comparison with Other Funds in the Same Category. Another thing to do when you face loss in a mutual fund is to do a performance comparison with other funds in the same category. It means checking the response of funds in the same category, such as comparing small-cap funds with other small-cap funds.

Since the performance of the fund is linked to the movement of the market, mutual funds only offer returns if the market performs well. If it doesn't, they may not provide any returns at all and can even lead to capital loss.

If a fund consistently underperforms its peers for an extended period, say three years or more, it might be best to exit that mutual fund. Avoid rash decisions based on short-term fluctuations in performance, like the last six months or a year.

Typically, the ideal holding period for an equity mutual fund is considered anywhere between a minimum of 3-5 years. But data shows that only investments in 3% of the units continued for more than 5 years.

The 30-day rule for mutual funds prevents you from claiming a tax loss if you buy the same or a similar fund within 30 days before or after selling it.

The assets must remain in that equity fund for a period of 90 days before becoming eligible for transfer into a competing stable value fund. This restriction is imposed by the issuers of the investment contracts in which the fund invests.

If you invested through a broker or distributor, you could withdraw money from a Mutual Fund plan through them. Contacting your broker and requesting a withdrawal are options. You must complete and submit a withdrawal request form if you want to withdraw offline.

How do I know if my mutual fund is underperforming? ›

Compare the Fund's Performance to that of its Benchmark

You will know about a fund's benchmark in its factsheet. If the fund has delivered returns above its benchmark, it has performed well. On the other hand, if it has delivered returns below it, it's said to have underperformed.

Mutual fund orders do not work like other types of securities. Orders can be placed throughout the day, but they are only processed/filled at approximately 6:00 pm EST. Any orders placed after 4:00 pm EST will not be filled until 6:00 pm EST the following day.

In that case, your mutual fund losses may be due to the broad market forces. Such downturns are common in the market and usually correct or reverse with time. Capitalise on the downtrend: If the downtrend is a broad-market phenomenon, you can capitalise on the falling prices while you wait for them to reverse upward.

Moreover, mutual funds are meant to be evaluated against a benchmark such as a broad index or other yardstick of value - so if the S&P 500 falls 3% in a year and a large-cap mutual fund only falls 2.5%, it can be considered a "good" return, relatively speaking.

Instead, focus on “time in the market” rather than “timing the market.” By starting early and staying invested through market cycles, you benefit from rupee cost averaging. In an SIP, you invest a fixed amount regularly, buying more units when prices are low and fewer units when prices are high.

It is, however, important to remember that mutual fund investment gives good returns when you stay invested for a long period. This is vital to keep the impact of volatility to minimum.

A tête with some personal financial advisors reveals why discontinuing or delaying investments offers no advantage. Succumbing to market hype has proven more detrimental than beneficial, with even those who claim to be long-term investors rushing to secure profits from their mutual funds.

A roundtrip is a mutual fund purchase or exchange purchase followed by a sell or exchange sell within 30 calendar days in the same fund and account. For example, if you purchased a fund on May 1, selling the fund prior to May 31 would incur a roundtrip violation.