Ask Morningstar: Don't be hasty to exit because of underperformance

Jul 31, 2022

I have SIPs of Rs 5,000 in Kotak Flexi Cap and PPFAS since 2020. In the last bull run,  the Kotak fund did not beat its bench mark as most of its portfolio is in large caps. So I want to switch over to a mid-cap fund. How is Kotak Emerging Equity? It has a growth stock portfolio.

You do seem to have given thought to your fund selection. And, it’s good that you are looking at diversifying your portfolio across market caps.

However, please do remember that returns average out over the long term. While redeeming an investment may seem like the right approach to take when the performance of a fund goes down, it is not always in your best interest to do so. The performance of any fund will tend to witness some cyclicality based on the market movements and the type and style that the managers choses while investing. We always recommend staying invested over the long term as opposed to trying to time the markets as a better way of investing. More often than not, you will tend to either redeem too soon or invest too late, resulting in a significant gap between the returns that the fund makes versus the returns that you get as an investor.

While the Kotak Flexicap fund underperformed in 2021 and 2022, we think that the fund is backed by a strong manager who adheres to the fund’s core philosophy.

With respect to investing in a mid-cap fund through the SIP route, Kotak Emerging Business is a good option for an investor who prefers to invest in growth oriented mid cap stocks. The manager aims to invest in liquid names with a view to protecting the downside risk on the fund. Holding a diversified portfolio and redeeming investments when you’re either rebalancing your portfolio or have achieved a ‘goal’ that you set out to meet while you invested will help maintain discipline while investing.

I have analysed these funds from the AMC. You can read the research reports here:

Registered readers can post their queries by accessing the Ask Morningstar tab. Our team will answer SELECT queries relating to mutual funds, portfolio planning and personal finance. While we provide broad guidelines, we suggest you consult a financial adviser before making investment decisions.


Articles authored by Kavitha Krishnan

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