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When Should I Change My Existing Mutual Fund Scheme?

Rashmi Ghosh Rashmi Ghosh 18 June 2019

Smart mutual fund portfolio management happens through trial-and-error. Read on to know some clear signs that your mutual fund scheme needs a switch.

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How does mutual fund work?

You research, choose your mutual fund scheme as per your objectives, budget and other parameters, and then invest in a suitable one. And then when it reaches the end of the investment term, you can reap the benefits of the capital growth, right?

Yes, that’s right, but partially. Mutual fund investment requires more than just investing in it and then waiting for it to generate returns by the end of the investment term. Your mutual fund portfolio requires more hard work than that. It needs a close watch and effective management throughout the investment tenure for you to achieve optimal capital growth. Switching between funds is essential to avert market risks, prevent fund underperformance and keep stagnation of fund performance at bay.

Apart from these factors, there are certain situations when portfolio circulation becomes necessary.

Change in your investment goals

Before you start investing in mutual funds, you need to figure out a strategy that meets your unique objectives, risk appetite, investment term, budget and various other goals. These factors determine the type of mutual fund schemes you should invest in. In terms of investment horizon, mutual fund investments can be categorized into short, long and intermediate. For risk appetites, the classifications are aggressive, moderate and conservative. What type of returns are you looking for through your mutual fund investment? In that case, mutual fund scheme can be divided into income-oriented, balanced and growth.

You may have considered a certain objective at the time of investing a mutual fund scheme. But what do you do when your objective changes mid-term? In such a scenario, you can switch between funds to suit your new investment goal, horizon and risk tolerance.

Underperformance of your MF scheme

There’s no guarantee to how the mutual fund scheme that you have invested in will perform during its tenure. You may have evaluated the past fund performance, and done all the permutation and combination to zero in on one mutual fund investment. Despite all your efforts, you never know when your scheme might underperform even in favorable market conditions or get exposed to risks. To avoid running into stagnancy, you have to switch to another fund to ensure stability in your portfolio. Over-weight mutual funds should be circulated to maintain balance in the portfolio.

Wrong choice of investment

Mistakes happen. Not every time do you get the opportunity to correct a mistake. Fortunately, mutual fund investment is not one of those. In case you have invested in a mutual fund without research or understanding certain technical aspects, and later realise that it is not a good fit for your objective or risk appetite, worry not! The assets in your current portfolio can be easily reallocated into one that meets your needs.

To wrap up…

Misplaced predictions aren’t an alien concept in mutual fund investments. Not just first-time or unexperienced investors, even seasoned fund managers may sometimes lose foresight of the future of a mutual fund scheme. Not just that, an investor should keep rotating the assets in the portfolio to maintain balance and optimize fund performance.

Recommended Read: Things to Know While Investing in the Right Mutual Fund

Rashmi Ghosh
Written by Rashmi Ghosh
Digital enthusiast, dreamer with a colourful mind and shares her soul with canines. She survives on coffee, and food and travel feature among her topmost priorities.