Most of the investors believe that their role ends after they make an investment in the mutual fund. And if it underperforms, they blame it on the asset management company. As an investor, you should be aware of the conditions that affect the performance of the mutual fund. If you are a beginner in this line of work, you should focus on choosing the right portfolio first. If you want to know how to opt for the suitable one, you can visit this page. Also, you should be in a position to take necessary steps when your mutual fund underperforms.
Here, you will learn about assessing the performance of your mutual fund, the reasons responsible for the underperformance, and the steps that you should take to revive your investment.
How at Analyze the Performance of the Mutual Fund?
Investors are very clear about investing regularly in mutual funds. But they fail to understand that regular investment demands regular monitoring. If you do not monitor the performance of the mutual funds, you might not get the expected returns, and you can even face a loss. Now you may ask how to monitor the performance of the mutual fund?
You can monitor the performance against the established benchmarks. You should divide the returns delivered by the mutual fund in the last 8-12 quarters. Now, compare these quarterly returns against the benchmark index.
If the fund delivers a fluctuating performance wherein, there are both underperformance and outperformance factors, you can keep your money invested in the funds. But, if it is underperforming consistently, it is time to ditch the mutual fund and consider another one.
What are the Possible Reasons for Underperformance?
Now, it is important to determine the reasons for underperformance as this will assist you in taking a decision.
- In most of the cases, the role of the fund manager is the major cause. If the fund manager is changed, it may affect the returns on your investment. Every manager has its own style of working. In the process, it is possible that the investment suffers a loss during the restructuring of the portfolio.
- Fund management issues arise when there is a merger of the funds or acquisition of a mutual fund. In these cases, the fund management roles get affected. The investment strategies and approach gets changed because the objective of the company is changed. Similarly, investment style matters a lot. During a bullish market, aggressive approach pays higher dividends and in a bearish market, a defensive approach is appropriate.
Necessary Steps to Mitigate the Underperformance
As you are completely aware of the situation now, it’s time to take decisions. You can either switch or hold on to the existing mutual funds. But, proceed with the decision after analyzing the reasons.
- If the fund is underperforming consistently over a long period of time, you can stop your investments immediately. You can determine the performance by using the benchmark index.
- If the situation is concerning the fund management, you can hold on to the investment. The future prospects may be bright. The market conditions also determine the future returns in this case.
- Due to change in the fund managers, you may experience underperformance for a short term. But in the long run, you may experience spectacular results from the experienced fund managers.