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What should you do when your mutual funds underperform?
17 Jul 2012, 06:43 PM
On September 27, 2007, the BSE Sensex had hit the 17000 level (on closing basis) for the first time. The index has been lingering thereabout even 5 years later in 2012 without any real movement. Grievous fall of the market for the reasons now known even to the most reluctant investor took the index to 8000 levels in March 2009. However dramatic recovery happened thereafter, rekindled the aspiration of wealth creation among investors but unfortunately it didn't last long as the range bound markets frustrated them over and over again. It was quite a crucial phase for mutual funds as they got no real support from the market which tested the fund management abilities of fund managers. Some funds have made their fortunes while others have lost their charisma. The total folios held by retail investors under all equity oriented schemes put together, in March 2012 were 9.4% lesser than the number of folios held by them in March 2009. Clearly the investors' interest is drying but their behaviour has remained more complex than one would imagine. In this article we have analysed how investors have responded to the performance of mutual funds and also have tried to answer the most commonly encountered question of how to deal with an underperforming mutual fund.

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Change in AUM is calculated over 5 years (i.e. from March 2007- March 2012; except in case of IDFC Premier Equity fund where the change in AUM is calculated from November 2007- March 2012 for the reason of unavailability of data)

NAV Data as on June 29, 2012 (Source: ACE MF, personalFN Research)

The funds that have become popular with the investors in last 5 years are either the top performers of the recent times or the steady performers across the market cycles. The sector and thematic funds have dominated the list of top performing funds over the last 5 years. Ironically, the bottom performers too are the sector and
 
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