Your SIP Has Underperformed For Three Years: What Should You Check Before Stopping It?
In this news:
Key takeaways
- Review the fund performance against its benchmark index.
- Investigate the specific reasons behind the underperformance.
- Evaluate whether the investment still aligns with your original financial goals.
Broader uncertainty in economic conditions, corporate earnings and other aspects can influence stock market returns. This means that if you are invested in the markets, your portfolio could not be performing as expected. That is why it is recommended to review your portfolio periodically to ensure its returns align with your expectations. If you invest in mutual funds and they haven't performed as expected for three years, you may question whether you should continue. But stopping it immediately may not always be the right move.
Before making a decision, here is what you can consider:
- Check the fund's benchmark: Do not look at your fund's return in isolation. Check how it has performed against its benchmark over the same period. If the benchmark also gave weak returns, the issue may be with the overall market or category. But if the fund consistently lags, it deserves a closer look.
- Check why it is underperforming: See whether the fund has changed its strategy, fund manager, portfolio, or risk level.
- Review your original goal: Check whether the investment still fits your goal, time horizon, and risk tolerance.
- Check your overall portfolio: One fund doing badly does not necessarily mean your entire portfolio needs changing. Check how the fund has affected your overall returns and decide accordingly.
- Avoid reacting to short-term emotions: Markets move in cycles. This means there can be periods of long-term uncertainty. If you have a long-term investment horizon, stopping your SIP after a brief weak period can sometimes adversely impact your portfolio.
As an investor, you must understand the core reason behind your fund's poor performance before deciding to stop the SIP. If the market is broadly declining, you may need to be patient and focus on the long-term outlook. However, if the issue is with the fund itself, you can review it and adjust your SIP accordingly.
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