{"id":27024,"date":"2023-04-04T12:55:49","date_gmt":"2023-04-04T07:25:49","guid":{"rendered":"https:\/\/fundsindia.com\/blog\/?p=27024"},"modified":"2023-04-13T15:18:59","modified_gmt":"2023-04-13T09:48:59","slug":"should-you-be-worried-about-your-underperforming-funds","status":"publish","type":"post","link":"https:\/\/www.fundsindia.com\/blog\/mf-research\/should-you-be-worried-about-your-underperforming-funds\/27024","title":{"rendered":"Should you be worried about your underperforming funds?"},"content":{"rendered":"\n
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A version of this article was originally published in Mint Genie. Click here<\/a> to read it.<\/span><\/em><\/p>\n\n\n\n

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We carefully select good funds and build a portfolio around them. But sometimes, some of these funds end up underperforming the benchmark.<\/p>\n\n\n\n

And this underperformance worries us every time we check our portfolio.<\/p>\n\n\n\n

But should we be really worried?<\/p>\n\n\n\n

Before we attempt to answer this, here is a quick question…<\/span><\/strong><\/h4>\n\n\n\n

There are two equity fund portfolios of Rs 10 lakhs each as on 01-Jan-2013. Here is how they have performed in the next ten years… <\/em><\/p>

Portfolio A:<\/strong> Gave returns lower than the benchmark in 31% of 1-year periods<\/em><\/p>

Portfolio B:<\/strong> Gave Rs 18 lakhs more than the benchmark over the decade<\/em><\/p>

Which of the two would you prefer?<\/em><\/p><\/blockquote>\n\n\n\n

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If you are like the rest of us, you would have picked Portfolio B.<\/p>\n\n\n\n

Clearly none of us would want to miss out on an extra Rs 18 lakhs!<\/p>\n\n\n\n

And as you might have expected, Portfolio B comprises the best performers. To be more precise, this portfolio includes the top 10 funds with the highest returns between 01-Jan-2013 and 31-Dec-2022.<\/p>\n\n\n\n

But here is something you might not have expected\u2026<\/span><\/strong><\/h4>\n\n\n\n

Both Portfolios A and B are the same!<\/strong><\/p>\n\n\n\n

Yes, the ten best performers of the last decade (which delivered an average outperformance of 180% versus the benchmark Nifty 500 TRI) also underperformed in 31% of 1-year instances.<\/p>\n\n\n\n

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Surely, this must have been an anomaly specific to the last 10 years?<\/span><\/strong><\/h4>\n\n\n\n

To understand whether the above underperformance was a one-off, let’s check the 1-year consistency of the long-term best performers across different periods.<\/p>\n\n\n\n

The results are as below,<\/p>\n\n\n\n