I invested Rs 1 lakh via monthly SIPs of Rs 4000 each in XYZ Mutual Fund (Equity: Large & Mid Cap) starting from Jan 2010 upto Jan 2012. (This was my first SIP investment at the age of 27 years. I’d started reading Subramoney.com  some 3 months prior to that, which was how I got introduced to MFs.) At the time of starting the SIP, XYZ was rated 5 star by Value Research Online, for the past few years prior to 2010, which is one of the reasons I picked this fund. Then I stopped the SIP in Jan 2012 because the fund rating went consistently down (3 star) for a year. However, I didn’t redeem the existing units then. I was hoping for a turnaround. Oct 2012 onwards, the fund rating fell further down to 2 star. So, I decided to pull out of this fund and redeemed all units a couple of weeks ago, aka last week of April 2013. (The Rs 1 lakh had grown to Rs 100700.) Considering inflation and opportunity cost, its a definite loss here (as other funds have delivered much better returns).

Now my dilemma is, how do I go about reinvesting this amount in another mutual fund. My objective is long term investment for retirement planning aka 20 to 30 years.

1. Do I invest this amount in one go (lumpsum investment) in another ABC MF (Equity: Large & Mid Cap) that has been rated 5 start (for the last 5 years or so)? Or
2. Do I once again do a SIP and invest this amount over the next one year, in the above mentioned ABC MF?
3. Did I make a mistake by pulling my money out?
4. Any rookie / starter mistakes I made with my first ever MF SIP investment?
5. Typically how long should you wait before you pull your money out of a badly performing MF?
6. Have I missed anything obvious?
7. Any other points you may want to touch upon.

My apologies upfront for posting this rather long and detailed question – googling didn’t yield any results. Most sites say when to redeem (aka fund manager changes, too many bad calls, fund objective changes) and how to redeem (aka what form to fill, how many units), but not how to redeploy the money you have redeemed (which is what I want to know).

1. I’ve no hesitation in naming XYZ abd ABC, but was not sure if it would be advisable to do that in your blog.
2. Another thing to note is that I also have 2 other SIPs running for Rs 4000 each, in MFs (Equity: Large & Mid Cap and Equity: Large Cap) belonging to 2 different Fund Houses. As of today, the rating of these 2 MFs has consistently been in the 4 star and 5 star range over the last 3 years. The day to day value of my amount invested keeps fluctuating with the stock market, of course. (And ‘everybody and his uncle’ says the market has gone nowhere in the last 5 years.) The reason I haven’t thought of stopping these SIPs is that I’m happy to see the 5 star and 4 star rating of the correspoding MFs.
3. I’m also not sure if I’ve provided all other details that may be required to arrive at a conclusion. Please let me know if more info is required. Yeah, at the end of the day I’m also probably as clueless as the guy next door!

  1. you have done the right thing by reddeming units from a non performing fund .increase your sip in the remainig two well performing funds!!!

  2. Dear investor,
    Your whole investment strategy seems to be revolving around the “stars” of the MF companies. You have all the inputs in you, but still you are missing the catch. You say that you want to invest for long term(20 years) and you redeem in just 2 years looking at the star of the MF. If you do the same throughout your investment period, you will end up nowhere.

  3. I don’t invest in MF. But my 2 cents.
    1. This star rating is funny. For ex, Mirae Asset India , PineBridge Infra are also 5 star. You can find a lot of such funds with a) pathetic long/short term performance b) very tiny AUM size c)low quality portfolio. I am surprised nobody questions why they are highly rated.
    2.One fund house has 2 popular funds. But they have a huge overlap in the major holdings. What diversification one achieves here?. They seem to love SBI and Infosys forever.
    3. The only 2 funds I like are IDFC Premier Equity and Magnum emerging business. Of late even these have not been doing great. Possibly due to the increased AUM size and frequent churning ( Magnum). Then there is this inherent industry specific of redemption pressure. This tells that its very difficult for an average investor who goes just by rating/popularity/advice or performance. By the time he/she realizes the fund is not doing well, all the gains would have been wiped out. Power of compounding calculation will go for a toss.

  4. my take is: he may invest in the existing fund/s at one go , or in 3/4 stretches within a month or so , and observe at least for two more yrs., as some observed that this cycle started January, 2008 of bear/stagnation/volatility would complete in next two yrs (total 7 yrs),and then reasonable return one may get. or he may invest this a/m in some one or two Economic moat company equity shares after getting paid fee based advice from some equity share adviser to create wealth in/for long term and subsequently switch his existing equity mf investment in the same way to create wealth creating equity portfolio. of course this is also not guarantee without any flaws.

  5. Dear Newbie Investor, first of all I w’d say please do not invest on the basis of ratings. The same funds can be rated 2 star, 3 star & 4 star & 5 star by different rating agencies. Which one w’d you believe? Instead of answering where to invest, My counter question to you is, what was your own return expectation about this XYZ fund & has it manage to meet that or not? Please check the performance of your fund wrt it’s benchmark & if it’s providing returns more than it’s benchmark, you need not to come out.

    As you are already out & want to invest in ABC, Please do invest in a lump sum so that compounding is not disturbed.

    Thanks

    Ashal

  6. Hi,

    As investors, we need to invest in a fund that is good from a forward looking perspective. However, what is available in the market (star rating) is backward looking.

    Its not a surprise that fund flows in a fund also depict the same story: most of the investors put money in a fund once it has gone past its prime.

    The same happens when we try to re-balance the portfolio.

    I agree with Ashal that you reinvest in lumpsum (may be spread over a couple of months).

    Regarding fund selection, some detailed analysis of funds is available at http://www.thefundoo.com/Fundoscope.aspx
    The analysis provides a detailed view of index related performance, skills of fund manager, style of investments, style purity and consistency of these.

    If its complex to understand, feel free to write to me at 3sharad@gmail.com for help or fund selections.

    Regards,
    Sharad

  7. Redeem all units in the non-performing mutual fund and invest with 2/3 fund houses which a very good track record.

    Avoid sector / theme funds / opportunities. Timing matters for them.

    Along with rankings check for asset size ( go for 1000 Crores )
    Go for a fund with higher sharpen ratio.

    Go for 2/3 pure diversified funds from 2/3 fund houses with different investment styles ( Value , Growth etc ).

    I suggest to go for :-
    a) Templeton India Equity Income
    b) HDFC Equity
    c) Quantum Long Term Equity

  8. Just forget all the nonsense from the market, choose any fund from TOP houses Because they will have money muscle SBI & UTI i believe are good because they spend less on marketing , HDFC Templeton & ICICI are good because they have big pockets & big backers maybe with lot of inside information also,
    Decide your target & redeem once you reach the target.so if you have a target of let us say 10% increase in 1 year, book the profit & get out & invest again doing the same exercise, If you make a loss get out immediately,I have a targets of 20% or 2 years in equity so whichever is earlier I redeem & invest as new decision again.

    None of the experts can predict future & predicting of future is not worth the effort at all.
    You may also invest in the company you work for if you feel it is good & listed on the Market,Just forget all the crap,

    It is your money & you get screwed if you make a loss.

    Also please do understand how much risk you are taking for the extra 2 or 3% benefits you are getting by investing in Equity instead of Fixed deposits or bond markets. if you are not comfortable do not invest it is better that way for mental peace…….

  9. Two words:
    Index fund.

    Beyond two words:
    If you have problems picking funds, stick with a cheap index fund.
    What will you do when ABC rating goes down? 😉

  10. Hello Investor,

    Please don’t rush.

    Take your time and educate yourself on –
    a. How much money you need for retirement / other goals?
    b. Asset Allocation – How to diversify and reduce risk?
    c. Selecting Mutual Funds – as many have suggested, don’t just rely on the ratings. Check the history (10+ years if available) of the fund, the investment objective and more importantly its expense ratio (you can further minimize it by opting for Direct Plan). I prefer Index Funds, but I am not sure if you can achieve the required diversification in India by only investing in Index funds.
    d. Rebalancing portfolio as required

    Once you understand the basics, SIP – Diversify – Tune out the noise – Stay the Course.

    Good luck!

  11. Hi,
    You must invest your proceedings as below:
    1.Invest 50k in Templeton India TMA Super Inst-G and opt for STP to FT India Feeder Franklin US Opportunities

    2. Invest 50k in BSL Short Term-G and opt for STP into in BSL dividend yield plus.

    Both the schemes are risky and are advised because the goal is of long term in nature.

    For other details you can reach me

  12. @Yanamadala
    what is the special about the funds you suggested? all seem under performing w.r.t major indices with margins at least from the start of the financial yr.

  13. @Yanamadala

    you are suggesting to go for 1000 crore AUM , but QLTE is @100 crore AUM fund. what is your real advice? how about FMCG sector fund for india?

  14. I agree with Yanamadala. Just go with the three funds he has suggested. My major investments are with these funds only. And I am trimming the others.

  15. Suggest the flwg portfolios (as per risk taking ability) based on my experience. Pls invest in MF, if your goal is atleast 5 yrs away. When you are close to the goal and the market performs well, don’t hesitate to switch to liquid funds or FD.

    SIP is far better than Lump sum investment. If you feel the overall market is beaten down heavily and undervalued then go for small lump sum investment to top-up the existing SIP. Always select growth option in the fund for better compounding return:-

    For Conservative Investor:-

    1)SBI Magnum Balanced – 40%
    2)ICICI Pru Balanced – 40%
    3)Quantum Long Term Equity – 20%

    For Moderate Investor:-

    1)Quantum Long Term Equity – 40%
    2)Templeton India Equity Income – 40%
    3)HDFC Midcap Opportunities fund – 20%

    For Aggressive Investor:-

    1)SBI Emerging Business Fund – 25%
    2)Reliance Equity Opportunities Fund -25%
    3)IDFC Premier Equity – 20%
    4)Quantum Long Term Equity – 20%
    5)L&T Global Real Assets fund – 10% (**for tax purpose this fund is treated as Debt fund**)

    If your goal is just tax saving under 80C, then go for the below funds:-

    1)Quantum Tax Savings fund – 40%
    2)Franklin Tax Shield fund – 40%
    3)Axis Long Term Equity – 20%

    I redeem the units only if the fund manager change. If the fund manager is the same person, don’t worry about short term under performance. Rahul Dravid or Sachin Tendulkar can’t be a bad batsman overnight.

    Happy Investing….

  16. Hi Subra,
    We are eagerly waiting to know what advice that you have given to that poor advisor. Because this advisors experience is the similar one I am also facing …

    Looking for some rules like on what basis we know that the fund which we invested is not doing well and it is time to move on?

    Regards,
    Shankar

  17. My two bits (subra – you urself recommended this for me and it worked well)

    Invest lumpsum in a liq fund that gives a daily dividend and do a monthly switch into an Equity fund… Daily interest will ensure that lumpsum money is not idle and monthy switch ensures continuing the SIP philosophy

    Any other lumpsum money that you come into, put it in tothe liq fund

  18. Dear Sir,
    In current uncertain period where to invest Provident Funds and other retirements benefits to get 8 to 9 % Tax Free returns

  19. Hello
    I have physical shares in the name of my grandfather and grandmother , and they are nomore , now I am struck with those paper shares, what can I do to demat it on my name ?

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