Gone are the days when you could buy a mutual fund and leave it forever. Financial planners believe it is important to review mutual fund investments once a quarter or at least once in six months to optimize returns. The sharp difference in returns between the top performers and the laggards in every category is making this important, say financial planners.
For example, if one looks at returns in the the mid cap category in the last one year, the best performing scheme, PGIM India Midcap Fund, has delivered 40.9 % returns, while Sundaram Midcap at the bottom has delivered 6.52 per cent, a gap of 34 percentage points. Even over a three-year period, Axis Midcap has delivered an annualised 13.02% while ABSL Midcap has lost 2.77%.
In the Multi-cap fund category, Parag Parekh Long term Equity has delivered 28.39 per cent in a year and 14.4% over three years, while Nippon India Multicap Fund has lost 2.05 per cent in a year and over three years Taurus Starshare has lost 2.2%.
The pandemic changed the fortunes of many industries. Sectors like pharma which were laggards performed as government spends on healthcare increased and US FDA approvals came faster. Chemical stocks gained due to an anti-China wave, while private sector banks with high valuations fell on fears of rise in NPAs due to the pandemic.
The runaway rally in Reliance Industries, a few pharma stocks, specific midcap stocks within chemicals and IT stocks have led to some funds doing well. Those funds which could not move away from banks, NBFCs and PSUs have lagged behind.
Wealth managers believe though it is impossible to find the best performing fund, it is important that investors identify and weed out underperformers.
“Any scheme which is underperforming its benchmark for 6-9 months is flagged off. We understand the reason from the fund manager and give time to restructuring from the fund house. However, if things do not improve after another 6 months, its time to exit the fund,” says Deepali Sen, Founder, Srujan Financial Advisors. She points out that in some cases it might merit to just stop the SIP and hold the lumpsum, based on exit loads and tax liabilities.
At the same time, financial planners caution against entering mid and small cap funds with small assets under management just on the basis of one year return.
“Liquidity is important especially in mid and small cap funds. Investors could do a liquidity analysis of the fund by looking at the top bets,” says Amol Joshi, Founder, Plan Rupee. For example, if the fund has assets of Rs 300 crore with the top holding at 8% of portfolio, which clocks volumes of just Rs 2 crore daily, it would mean the fund would need minimum 12 days to liquidate the stock, provided there is a buyer.