Tracking and Exiting Non Performing Funds

Nargis posted a very interesting comment on the Suggest a Topic page a few days ago, and that triggered a lot of thoughts in my head which I’m going to share in this post. I think the crash today makes it a bit more relevant than it otherwise would have been.

First, her comment:

I enjoy your informative posts and have learned a lot. I am a MF investor and have done lump sum & SIP in various schemes. I understand that we must track these investments at regular intervals and exit the non-performing funds. I really do not know how to go about it. Please do a post this topic specially covering SIP investments.

I see the question in two parts  – how to track mutual funds; how to identify the ones that you need to exit, and then when should you exit them.

Let’s tackle the easier question of how to track mutual funds first.

Track your investments: First thing you need to do is track your investments. You need to be easily able to pull up how many mutual funds you own, at what price, and when you bought them. If you’ve bought these mutual funds using a portal like ICICI Direct then you have the information right there, and you can easily track it. If you’ve bought these units offline or have bought them in a manner that doesn’t allow you to track them online then you need to use another tool to track them. MoneySights is a great site that I’ve reviewed in the past here. You can create an account there for free, and monitor your mutual funds. There are several other sites like Rediff Money, Moneycontrol or Value Research Online which offer similar tools, and you can check them out too.

What you decide is up to you, but the idea is that after you are done – you should have one place where you can track your investments easily. Without this, you will be stuck and won’t be able to proceed much further.

Now, that you have a place to track your mutual funds, let’s take a look at tracking and exiting. I’ve seen far too many people exit at exactly the wrong time, so first I will address that.

Generally, not a good idea to sell in panic: When the market is up, and things are going fine people generally don’t think about selling. It’s only when the market has crashed, or is low do people think about selling. In general, I’d say this is not a good idea. Stock markets move in cycles, and you will generally be able to get more for your investments if you wait out a year or two for the market to recover and then sell it rather than selling when the market is crashing, and there is panic all around.

The one exception I would make here is to get rid of hot stocks and penny stocks in times of crash. This is not so much applicable to mutual funds, but if you were holding a sector fund, and you see the whole sector implode, then it might be a good idea to cut your losses and say good riddance to the investment.

I feel this is really important and I’ve addressed this in a full post earlier as well, so you might want to read that as well.

Sell too much of the same thing: If you have too many sector funds focused on the same thing like too many mutual funds in the small cap space, or too many infrastructure funds then you can think about getting rid of some of the ones who are not performing well. This is because there is generally a lot of overlap between the stocks these mutual funds own, and by owning too many mutual funds of the same type you are not diversifying or getting any other benefit.

Sell your mistakes: Recently, Greenlight Capital’s famous hedge fund manager – David Einhorn sold all his Yahoo! stock at a loss due to a dispute between Yahoo! and their Chinese subsidiary. Einhorn’s rationale was very clear – he said that they had bought Yahoo! for its considerable Chinese assets, and when they saw that Yahoo! doesn’t control the Chinese assets as tightly as they should – they sold it.

Another famous hedge fund manager John Paulson recently sold all his Sino Forest stock after there were fraud allegations on Sino Forest. It is said that he had a much bigger loss.

If these highly successful money managers make mistakes, then it is very likely that you and I will make mistakes. It’s best to accept our mistakes and cut our losses. Maybe the mutual fund that you chose doesn’t really track the asset like you thought it would, or the sector isn’t as hot as you thought it would. Maybe the fund was sold to you and some things were not clear to you at the time when it was sold which are clear now, and that makes it less appealing.

If your original thesis is getting proved wrong – admit it and move on.

For your reading pleasure – here is one example of my mistake (of which there are far too many).

Sell the bad performers: Sites like Value Research and MoneySights rank mutual funds according to performance, and you can see that several mutual funds have never done well. Keep an eye on the poor performers in any category, and see what kind of history they have. Have they done badly for a long time, do they have too short a history. If they have been duds for too long then you are better off selling the non-performers.


I haven’t mentioned how often you should do this kind of assessment because I don’t think there is any way to say that you should do it every 3 months or 6 months or 1 year. You live and you learn, and every day will bring up something new for you that will shape your ideas and thoughts. I think it’s just better to keep a tab on current events, and as you learn that something is different from what you originally thought it to be – take action on that. Don’t fret over it too frequently, and don’t go to check your portfolio every day, and at the same time don’t let it lie for a year and forget all about it.

Investing through SIPs is a great way to build positions and get in the market, and if your goal is building wealth in the long term and getting equity returns by staying invested in for 15 – 20 years then this is a very good way to do it. These pointers should help you prune your investments, and hopefully get more out of your investments than you otherwise would have had.

12 thoughts on “Tracking and Exiting Non Performing Funds”

  1. Hi Manshu,
    Another excellent post. Thanks for accepting my request.
    I am a lot more clear now about how to weedout my portfolio of dumb funds.

  2. @Suraj, I follow the same strategy as you. Only I wait for a year after the last SIP and generally switch to a different fund from the same fund house (as I have online accounts with almost all the fund houses). Sometimes I redeem it fully as a lumpsum and distribute the money to different existing funds. One year I feel is a good enough period to judge a fund.

  3. I like this article in general but you have not mentioned exactly how to sell of SIP holdings when the fund isn’t performing. Here is what I am doing currently and your thoughts or suggestions on this would be helpful.

    1. When I detect a fund isn’t performing well (say for about 3 to 6 months continuously) then I stop SIPping into it first. But I still don’t sell off any old units though.
    2. Now, I wait for the fund to recover for another 3 to 6 months and if it comes back I just get back to investing into it.
    3. If it didn’t do well still, I start selling off my units that qualify for LT gain (so that I don’t have to pay tax) and if nothing has improved yet, I sell the rest at a loss.

    Is this a good strategy to get out of SIP investments? your thoughts are very helpful for me.


    1. I don’t think 6 months is a long enough time period to say whether a fund is doing well or not. I would myself look at the performance of a much bigger time frame like 5 year returns or at least 2 year returns. That generally gives enough time for the market to move through a cycle and for you to see what the peer funds are doing.

    2. Tracking MF performance of a year or less is not desireable as it may result in un-necessary churning of portfolio. I feel review performance of atleast 3-year timeframe.

  4. Hello,

    About “Track your investments” section: Another easy tool that can used is the CAMS website. You can get a consolidated account statement (in PDF format) of all the funds for which CAMS is the registrar + Karvy + Franklin Templeton funds. Best part of this is, you need no explicit user id. Just your registered email id. CAMS offers some other tools also to track your funds.

    About “Sell the bad performers” : Generally, market downturns are “good” times to consolidate your mutual fund portfolio, if it is bloated. You may not have to pay capital gains taxes. You can thus trim the number of funds to a more manageable numbers.

      1. CAMS Consolidated statment sometimes does’t include all folios even though the PAN is same for all folios. If user has registered different email IDs for different folios then also he may not get a consolidated statement.
        An investor need to put in some efforts using the various tools suggested by Manshu or he may find an advisor who provides consolidated statments at regular intervals or online 24×7.

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