Is your mutual fund scheme underperforming the market? Here we give you a few options to consider before rushing to dump your portfolio
VERY often mutual fund investors find the growth in the net asset value, or NAV, of a scheme not keeping pace with the rise in stock market indices. Does this mean that the fund is underperforming? Faced with such a situation, many investors even consider exiting the schemes out of sheer frustration. One way to decide whether to sell or hold on is to answer a few questions:
The performance of a scheme can be measured only against a benchmark which could be an index. If you are invested in a sector fund, then comparing the fund's performance with that of the Sensex would be like comparing apples with oranges. Also, a couple of months of blip in performance of a scheme should not be a problem if the scheme catches up against the benchmark over a period of six months. Give the fund manager enough time to prove his mettle.
Most investors buy into a scheme with a certain expectation. As an investor, you should make a note of your objectives while investing in a scheme. There are instances, where the investment advisors or financial planners recommend a scheme with certain view in mind. Investments in sectoral funds may run ahead of fundamentals riding the positive sentiments in market. But investors must remember that the themes take their time to unfold
For past one-and-half year, telecom stocks have been under pressure thanks to increased competition. But communications remain one of the key service offering in the rising economy. If your financial advisor has introduced JM Telecom Sector Fund as a telecom play with a 2-5% weight in your portfolio, do chat with him before you dump the fund looking at 13% loss over past one year. The telecom, as a story, may unfold over next couple of years and you may actually see an alpha here. Selling the fund at this level may not be the right way.
Funds that invest in overseas assets are bought for diversification. The motto is to enhance the portfolio quality than to increase portfolio returns. Given the stellar growth of Indian equities, it is likely that such funds may have underperformed.
