Why Some Mutual Funds Underperform in Your Portfolio
Why Some Mutual Funds Underperform in Your Portfolio
Yes, absolutely. In a well-diversified portfolio, not all funds will outperform at once. Some will lead, others will lag—that's what balance looks like.
Ever opened your mutual fund portfolio, looked at the returns, and thought—
“Wait… why is this one doing so badly?”
And then, almost reflexively, you wonder, “Should I just sell it and move into the better performer?”
If you’ve felt that way, trust me—you’re not alone. I’ve seen this pattern again and again in my offline work as a mutual fund distributor. But here’s the thing most investors don’t realize right away: having a mix of stars and sleepers in your portfolio is not just normal—it’s healthy.
Let’s Think Like a Cricket Team (or a Football Team!)
Imagine your portfolio is a cricket team. Your batsman scoring 90 runs every match? That’s your top-performing fund. But what about your slow-and-steady bowler who doesn’t grab headlines but saves the match when things go south?
Yep. That’s your underperforming fund—today.
Every fund in your portfolio plays a role. And just like players, they can’t all peak at the same time. In fact, if they’re all peaking together, you might actually be overexposed to one type of risk.
Now, let’s stretch this to football for a second.
- Striker: Your aggressive equity fund—exciting, goal-scoring, and often in the spotlight.
- Midfielders: Balanced or hybrid funds—connecting defense and attack, ensuring stability.
- Defenders: Conservative debt funds—quiet, underrated, but critical when markets get rough.
- Goalkeeper: Your emergency fund or liquid assets—rarely called into action, but can save the entire game when it matters most.
If your entire football team were made of strikers, you might score big… but you’d also concede goals like crazy. That’s not a strategy. That’s a gamble.
What Most Investors Miss
I’ve seen this many times in real life:
A client gets anxious seeing one or two funds in red, even if the overall portfolio is doing just fine. Sometimes, they switch to what’s currently doing well, only to find that momentum fades a few months later—and the previously “bad” fund starts outperforming.
Honestly? That’s like jumping from a boat just because part of it got wet.
Diversification Isn’t About Looking Good All the Time
Diversification means spreading across different categories, themes, and styles—so your portfolio isn’t tied to the fate of one sector or strategy.
That also means:
- Some funds will shine in bull markets.
- Others might cushion you during corrections.
- Some will feel boring for years—until they’re not.
And that’s okay. You want that balance. Because guess what? Your goal isn’t to win a sprint. It’s to last the full marathon.
The Real Question: Is the Underperformance Structural?
Okay, but what if a fund has been lagging for years?
That’s a different conversation. Not all underperformance is healthy. Sometimes it’s a sign that something deeper has changed—like fund manager exits, strategy drift, or category mismatch.
This is where professional review comes in. In my offline work, I regularly help clients distinguish between:
- Temporary lag (which is fine), and
- Structural weakness (which needs action).
“A portfolio where everything performs at the same time isn’t diversified. It’s concentrated.”
What to Do (and Not Do)
✅ Do:
- Review your portfolio periodically, not daily.
- Focus on long-term goals, not quarterly returns.
- Understand the role each fund plays in the mix.
🚫 Don’t:
- Switch too often based on short-term performance.
- Compare funds across different categories unfairly.
- Assume that underperformance means failure.
FAQ
Q: But isn’t it better to just keep only top-performing funds?
A: Only if you can perfectly predict the future—which none of us can. Winners rotate.
Q: Should I exit a fund that’s underperforming for 1 year?
A: Not always. One year is too short to judge most funds. Look deeper before deciding.
Q: What if I’m still confused?
A: That’s completely fair. In fact, it’s smart to ask. Offline consultations are the best way to get clarity for your personal case.
Final Thought
So, next time you feel that itch to drop a fund just because it's underperforming—pause. Ask yourself: Is this discomfort part of a healthy strategy… or a reaction to temporary noise?
If you're wondering what your own portfolio is really telling you, maybe it's time to have a quiet chat—offline, of course.
Your portfolio doesn’t need to look perfect every day. It just needs to work over time.
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