After a volatile couple of years in the markets, many investors are staring at portfolios that haven’t quite delivered as expected. But a dip in returns doesn’t automatically mean it’s time to exit. According to Prabhleen Bajpai, founder of FinFix Research and Analytics, the key is to separate temporary underperformance from structural issues.
Equity investing, she explains, is inherently non-linear. Periods of correction, sideways movement and macro uncertainty—ranging from weak consumption trends to geopolitical tensions—can weigh on returns across the board. Judging a fund in isolation, without factoring in broader market conditions, can lead to flawed decisions.
Benchmarking Matters, But Look Deeper
The first step is to compare a scheme’s performance against its benchmark and category average. For instance, in the flexi-cap space, while some funds may lag peers in the short term, longer-term data can tell a very different story.
A case in point: a fund underperforming over a one-year period may still outperform peers over a three-year rolling return basis. Bajpai highlights that investors often focus too much on point-to-point returns, ignoring consistency across market cycles. Metrics like SIP returns and rolling returns offer a more accurate picture of performance, especially in volatile phases.
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Returns alone don’t tell the full story. Investors also need to assess how much risk was taken to generate those returns. Tools like the Sharpe ratio, Sortino ratio and information ratio can help evaluate whether a fund delivered efficient returns relative to the risks involved.
Additionally, qualitative factors—such as changes in fund management, investment strategy, or asset allocation—should also be considered before making any decision.
The Cost of ‘Switching Lanes’
One of the biggest mistakes investors make is reacting too quickly. Chasing better-performing funds or “hot” categories often means buying into past performance rather than future potential.
Frequent switching can disrupt the power of compounding and lead to suboptimal outcomes. Historical trends show that market leadership rotates—styles like growth, value and momentum take turns outperforming. Trying to time these shifts rarely works in practice.
Rather than making knee-jerk exits, Bajpai suggests a measured approach. Identify underperforming schemes, monitor them over a few months, and pause fresh investments if needed. A gradual shift—rather than a complete exit—can help manage both risk and tax implications.
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