As India celebrates Independence Day, experts emphasise the importance of regularly reviewing mutual fund holdings, discerning temporary underperformance from structural issues, and avoiding behavioural biases that can impair long-term returns.
India’s Independence Day is often a moment for reflection, and this year it is also a useful reminder for savers to examine whether their money is working hard enough. Zee Business said the theme of financial freedom is a timely one for investors in India, where some holdings can quietly drain returns without causing the immediate alarm of a sharp loss.
Advisers quoted by Zee Business, Hemant Rustagi and Vishwajeet Parashar, warned against mistaking every weak fund for a permanently bad one. Their view is that an investment should be judged against its category, benchmark and peer group, as well as the reason for any slump and how long it has lasted. A short spell of disappointment, they said, may simply reflect market cycles rather than a broken strategy.
That distinction matters because broad underperformance can be misleading. Research cited by SMU Cox shows that more than two-thirds of U.S. equity mutual funds trail the SPY exchange-traded fund after fees over the long run, underlining how hard it is for active managers to keep pace once costs are deducted. Visual Capitalist has also highlighted how fees and hidden charges can compound the damage from mediocre performance over time.
A separate check is whether the whole category is lagging or whether the problem is specific to one fund. ET Money notes that some equity funds keep a higher cash allocation for liquidity and risk control, which can hurt returns in a strong rally even if it supports stability in a downturn. The Financial Express likewise argues that a falling net asset value is not, by itself, proof of a poor fund; what matters is how it performs relative to the right benchmark across a full market cycle.
Another practical test is a simple one: would an investor buy the fund today with fresh money? Parashar told Zee Business that if the answer is no because the fund has persistently lagged its peers or its style no longer fits the market, the holding deserves a closer review. But if the answer is yes, that suggests the issue may be temporary rather than structural.
Behavioural bias can also trap investors in losing decisions. Parashar pointed to the sunk-cost fallacy, the tendency to keep backing an investment simply because money has already been committed. Northwestern Mutual says performance chasing can be just as damaging, since switching repeatedly on short-term results often erodes long-term returns. The better approach, advisers say, is to assess whether the capital could earn more elsewhere now, rather than waiting for a disappointing fund to get back to the original purchase price.
The broader message is not to trade in and out of funds for sport, but to make sure each holding still serves a purpose. MFD has argued that portfolios often look sensible on paper yet still underdeliver because of overlap, high costs or poor goal fit. If a fund is persistently weak for reasons that are specific to the manager or strategy, investors may be better off reallocating it to an option that better matches their risk profile and long-term plan.
Disclaimer: This article is intended to inform and educate, not to recommend or endorse any financial product, investment or strategy. Please consider your own financial circumstances and seek professional advice where appropriate before making financial decisions.
