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What should I do if my Mutual Fund SIP is not doing good

If any of my SIP in mutual fund is not doing well what should we do? 1. Only stop SIP and start sip in a new fund and let the fund balance grow in that old fund? 2. withdraw all the balance in that mutual fund along with SIP in a new fund?

Dec 28, 2015 by Sundeep Nigam, Haridwar  |   Mutual Fund

When you are faced with the problem of underperformance you should remember four points:-

  • You should understand that, the underlying performance of mutual fund is the same, whether it is investment through Lump Sum or Systematic Investment Plan. If a SIP in a mutual fund is not performing well, it is unlikely that the amount already invested will do well.

  • Mutual fund investments are subject to market risks. If market is weak, it is very unlikely that your equity mutual fund investments will do well. From a performance perspective, you should evaluate the performance of your schemes on a relative basis, relative to the market benchmark and its peers. However, you should select a sufficiently long time horizon for evaluating the performance of your mutual fund schemes. Certain market conditions favour certain investment strategies. For example, over the last year, cyclical sectors would not have done well, except Automobiles etc. However, once we have confirmation that the India growth story is starting to take shape, cyclical sectors will likely outperform other sectors. Similarly, the past 12 months was not good for large cap Pharma stocks because of a variety of factors, but it does not mean that large cap Pharma is not a good story in the long term. Another example, is midcap versus large cap. In the last one year, midcap funds have outperformed large cap funds, but this had more to do with the FII activity in large cap stocks. Therefore, you should have a sufficiently long time horizon, of at least 18 – 24 months for evaluating the performance of a fund on a relative basis, and delink for market specific factors.

  • If you have been investing through SIPs be mindful of exit loads, before you switch to other funds. If the exit load of a scheme is 12 months, every SIP instalment will be subject to the exit load, if redeemed or switched before 12 months from the date of the instalments. The exit load will be a drag on your investment returns.

  • Finally, factor in short term capital gains tax in your investment decision. Mutual fund units redeemed within 12 months of the date of purchase, will be subject to a short term capital gains tax of 15% if you are making a profit. Unless you are getting substantially higher returns (incremental returns of more than 15% + exit load), it does not make financial sense to redeem / switch your units.
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