When should you switch your mutual fund scheme?

Updated: Thursday, April 18, 2013, 14:51 [IST]

It's an often heard complaint from investors that the returns from some of their schemes, particularly the equity schemes are very poor. In fact, last year there were as many as 9 fund houses where over a period of three years, 50 per cent-100 per cent of their schemes performed less than the scheme benchmarks. Here's when you should switch to a new scheme or liquidate your holdings.

Examine the portfolio

Quickly examine the portfolio of the scheme and see if they have stocks that are dud or unlikely to perform in the near term. For example, if the scheme is heavily skewed into infra and metal stocks, you might just not get return from the scheme in the short term, because this industry is out of fancy with investors.

Switch if you have got reasonable returns

If your scheme has consistently generated good returns, then the law of averages will catch up sooner or later. Switch to other schemes where you see value.

If markets are soaring its best to book profits

If markets are soaring, it's best to get out of schemes and liquidate at least part of your portfolio. Stay invested at least in another 50 per cent of your holding.

Stay with debt schemes if interest rates fall

It's best to stay with long term debt funds, if you feel that interest rates are likely to fall. For example, the RBI is widely expected to cut rates and there could be at least a 75 basis points on rate cuts by the RBI this year.

It's best to stay with a debt fund, as returns could be higher in a falling interest rate regime.

In any case, the one strategy that an investor should adopt is to watch and monitor his portfolio regularly, and ensure that the same is re-visited at least every quarter.

GoodReturns.in