BackAlways compare a fund’s performance with that of the benchmark index and its peers
Investing through an SIP during a rallying market like 2017 sends average costs up
PremiumIam 35 years old and have at least a 10-year horizon for mutual fund investments. I have been investing ₹1,000 every week in Axis Long Term Equity Fund since two years and recently started investing ₹1,000 each in HDFC Gold Fund and SBI Small Cap fund as well. I am planning to start a similar weekly systematic investment plan (SIP) in Franklin Feeder US Opportunities for international exposure. Please advise if these four funds would be a well-diversified set of funds for the long term.
—Nimesh
Please note that Axis Long Term Equity is a tax-saving fund and each investment will be locked in for three years. The fund itself is a quality and steady one to hold. The other funds where you have SIPs are also fine. You can continue SIPs in all your funds, as well as the US fund you have picked.
With HDFC Gold, note that gold acts as a hedge against equity; it rises when there is a risk-off scenario in global equity markets which pushes equity returns down. Gold can spend years delivering low returns. Therefore, it cannot play the same role that debt does in a portfolio and cannot substitute debt.
As and when you can increase your investment amount, add debt funds such as corporate bond funds, short-duration funds or banking and PSU debt funds to your portfolio.
I had invested in five funds three years back. Three have given me negative returns of 6-10%. It is generally advised that investors should not worry about short-term returns. What other parameters should I check to determine if I should exit any of the funds?
—Anish
When you look at your fund’s return, it needs context. This context is the market itself and what other funds in the same category are doing. While your fund may be in losses, this could be because markets are going through a corrective phase. If the market’s fall is worse than your funds’ fall, then it indicates that your fund has in reality managed better than the market. Again, your fund holds good if peer funds have seen worse performance than your own fund. The same holds true during rising markets.
The next factor to consider is the fund’s strategy. Some market cycles favour a particular strategy over others. The third factor is that performance also depends on when you entered a fund or at what points you invested. Investing through an SIP during a rallying market like 2017 sends average costs up. When you’re greeted with a steep market fall or a prolonged bearish market as we saw early this year and for much of 2018-2019, your returns will look poor.
Therefore, always see performance in comparison to the benchmark index and peers, and understand the fund’s strategy. When a fund lags index and peers for three or more quarters and by a significant margin of more than 3 percentage points, it is underperforming. In such cases, stop SIPs but watch performance. If there is no improvement in the succeeding quarters— which means the fund has not closed the gap by which it trails the index and peers—and it’s strategy is such that recovery is still a way off, you can choose to exit the fund.
Srikanth Meenakshi is co-founder, PrimeInvestor.in. Queries and views at mintmoney@livemint.com
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