EVALUATING FUND PERFORMANCE Exit a fund only if underperformance persists for 8 quarters

During her annual portfolio review, Mignonne D'Souza (name changed on request), a 44-year-old content writer based in Mumbai, found that four of her seven mutual funds had outperformed, while three lagged behind their benchmarks. D'Souza is wondering if she should stick to these funds or exit them.

- LARISSA FERNAND

The Sensex began the year at 72,240 and closed at 79,218 on December 19, 2024. While the rising tide boosted most funds, some have not delivered.

However, underperformance does not automatically warrant a sell decision.

Evaluation criteria

Consider multiple performance metrics. First, review trailing returns over various horizons, giving greater weight to longerterm performance. Second, look at calendar year returns to determine consistency. Third, examine three- or five-year rolling returns for a comprehensive view. Compare the fund's performance against its benchmark and category average. "If similar funds are doing better, the underperformance could be due to the fund manager's suboptimal decisions," says Gurmeet Singh, head of wealth management, DiVitas Capital. Focus on consistency of performance.

Identify reasons