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Sunday, May 31, 2015

Do not hod under performing MFs too long

 
 
The flipside of moving out too soon is the tendency to remain invested in funds even though they consistently underperform. In the table below, we have looked at the five worst underperformers in the past five years. These five funds have close to `690 crore of investor money, which has grown at an average annual rate of 4.5% in the past five years.

Thankfully, some investors have noticed the underperformance and punished it. The SBI Magnum Comma has seen its corpus dwindle from `653 crore in December 2009 to `224 crore now, a fall of 66%. Sundaram Select Focus, another chronic underper former, has seen its AUM fall by almost 70%.Still, about `7,000 crore lies in the 25 worst performing funds. This money has grown slower than the Nifty in the past five years.

Why aren't investors dumping these laggards? The advice in the market is often not in the interest of the investor. An adviser will get the investor to put in money but rarely ask him to take it out.

Ideally, one should monitor the performance of funds once in a quarter and review the portfolio once in a year. If a fund consistently underperforms for 3-4 quarters, it may be time to replace it with a better scheme.

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