Hopping in and out of MFs would eat into your corpus

These are trying times for mutual fund investors. Many traditionally strong fund houses are starting to falter, or so it seems. Their position has been taken by upstarts, sometimes with dubious distinctions. No wonder, many people are confused about dumping their underperforming schemes and migrate to better performing schemes. “It is amazing that the schemes which were consistently doing well in the past are in the bottom heap suddenly. One really doesn’t understand what is happening,’’ says a mutual fund advisor who is confronted by people who have invested in some of the past star performers. “I tell them the new toppers don’t have a track record that their schemes have, still they want to know the reason for the severe underperformance.’’ “One of the main reasons why some of the traditional performers are losing the plot is because they have gained in size. Or in other words, people like us have invested a lot of money in these schemes. However, because of their size their agility is hampered and they are not able to dance around in the market like they are used to,’’ says a mutual fund analyst. However, he is quick to add that some of these schemes are still safer than those upstarts with scorching performance, as the downside risk in them may be limited. “You shouldn’t base your decision to quit a scheme on the basis of severe underperformance in the past one year. Give it at least six months before taking a final decision.’’ This is especially true of schemes which have delivered in the last five years or so. Investment advisors also point out that getting in and out of the scheme in the long run would rob you of a chance to make extra money. Remember, there is mostly an exit load of around 2.5% every time you have to pay if you decide to get out of a scheme. Also, most fund houses charge entry load of a similar quantum on fresh investments. That means your hopping in and out of mutual fund schemes would eat into your corpus.