Why Switching Mutual Funds Too Soon Can Backfires
Why Switching Funds Too Soon Is Like Changing Lanes in a Traffic Jam
When your investments don’t perform the way you expected, the urge to switch funds can be strong. But often, that “better” fund you’re chasing may slow down just as your original one picks up. Switching too soon can cost you more than you think—financially and emotionally.
Let’s imagine you’re driving in traffic. Your lane’s moving slowly. You glance to the right—ah, that lane’s flying! You quickly shift over.
And what happens?
Almost like magic, that lane slows down. And the one you just left? Picks up speed.
Sound familiar?
Well, that’s exactly how many people treat their mutual fund investments.
“This Fund Is Not Working, Let’s Move” — But Should You?
Say you’ve been investing in a fund through SIPs. After a year, you check the returns. Not impressive.
At the same time, another fund—maybe one a friend suggested—is showing much better performance over the same period.
So now you're tempted:
👉 Stop the “slow” one
👉 Move money or SIP to the “better” one
But pause. Ask yourself:
- Do you know why your fund underperformed?
- Do you know why the other one did well?
- Are you sure this performance difference will continue?
Because here’s the truth: it rarely does.
Fund Performance Comes in Cycles — Just Like Markets
In my offline experience, I’ve seen this story play out again and again. An investor gives up on a good-quality fund just because it didn’t shine in the short term. They switch to a top-performing one… and guess what?
- The “old” fund starts doing well again
- The “new” one slows down
- And the investor ends up frustrated, again
“Switching funds too often is like digging up seeds because they didn’t sprout in 3 months. Growth takes time—and patience.”
What Are You Really Reviewing?
Let’s be real for a second.
When people say they’re doing a “portfolio review,” what they’re usually doing is comparing fund A with fund B based on recent returns.
But unless you understand why a fund is underperforming—whether it’s due to market conditions, investment style, or sector rotation—simply switching is like chasing shadows.
And rebalancing? If it means stopping SIPs or withdrawing investments from one fund to dump into another based on just 6 or 12 months of data—that’s not strategy. That’s reaction.
The Hidden Cost of Impatience
Stopping one SIP and starting another isn’t free:
- You lose compounding consistency
- You often shift money during a down phase, locking in losses
- You start a new SIP at a high NAV, often at the peak of another fund’s performance cycle
- You interrupt your own behavior, which is often harder to fix than the fund
In short: you pay a price for guessing the market cycle wrong.
Real Talk: I’ve Seen It Happen
There was this client—a young professional. We started a SIP in a well-rated flexicap fund. After 11 months, he came back worried. The return was barely 3%. Meanwhile, his friend had started a midcap SIP that was up 20%.
He wanted to switch.
I asked him to wait just 6 more months.
At the 18-month mark, his fund jumped to 17% CAGR.
His friend’s midcap fund? Slowed down to 5%.
He laughed, I smiled, and we both learned something valuable.
Quote to Remember
“In investing, activity is often the enemy of returns. Sometimes, the best thing to do is nothing at all.”
FAQ – Real Investor Doubts
Q: Isn’t it smart to move to the fund with better recent returns?
A: Not always. Past performance doesn’t guarantee future performance—and leaders change every cycle.
Q: How long should I wait before considering a fund switch?
A: At least 2–3 years, unless there’s a major red flag like poor fund management or a change in investment style.
Q: Can I do fund rotation every year to maximize returns?
A: That sounds smart, but it’s rarely effective in real life. Staying consistent with a good plan beats trying to time fund leaders.
Closing Thought
So the next time you feel like switching funds, ask yourself:
“Am I investing—or lane-changing in a traffic jam?”
Remember, in traffic and in wealth creation, the fastest lane is the one you commit to, not the one you keep chasing.
If you’re unsure whether your portfolio needs a review—or just a bit of patience—reach out to someone who understands your goals. Maybe that someone is me, over a quiet offline discussion.
Because building wealth isn’t about racing. It’s about arriving well.
Comments
Post a Comment