Today, investing through apps feels incredibly easy and convenient. With just a few clicks, you can start investing, track performance, and even receive suggestions. However, have you noticed that these apps also come with their own set of challenges?
One app’s “best mutual fund” is often very different from another’s. Some apps go a step further and flash alerts like “This fund is underperforming”, sometimes even nudging investors to exit immediately. As a result, many investors start hopping from one fund to another in the hope of quick gains. Unfortunately, this behaviour often ends up hurting long-term wealth creation rather than helping it.
Let us first accept an important fact: no fund manager ever aims to deliver poor returns. Every fund manager wants to be among the best performers in their category. Their core responsibility is to generate the best possible risk-adjusted returns, not just short-term outperformance.
We also know that markets move in cycles, not in straight lines. Therefore, every mutual fund will go through phases of underperformance. In fact, even seasoned fund managers candidly admit that only about 50% to 60% of their strategies work exactly as expected. They openly acknowledge that it is impossible to build a completely foolproof portfolio that accounts for every variable, whether controllable or not. Market conditions, economic surprises, interest rate changes, and global events, most of which are beyond anyone’s control, play a significant role in outcomes.
When experts who manage billions of rupees think this way, a retail investor should pause and think carefully before switching funds. It is important to remember that all market-linked products experience ups and downs. A fund that is a top performer today could easily slip into the lower ranks three or six months later. Therefore, short-term underperformance over the last three or four quarters should not, by itself, be a reason to exit a fund.
So, what should you do when you receive an underperformance alert be it from an app, a friend, or social media? The first step is to go back to your financial plan. Revisit the goal for which you invested in that particular fund. Ask yourself: Is this fund still aligned with my risk appetite? Does it match the time horizon of my goal? If the answer is yes, then no immediate action may be required. A fund meant for retirement may appear slow or dull today, but it could be doing exactly what it is designed to do for a long-term objective.
If you do decide to switch funds, it is equally important to factor in the costs involved like exit loads and taxes. More importantly, frequent switching leads to a loss of compounding time, which quietly but steadily erodes wealth. This loss is often invisible but extremely damaging over the long term.
Short-term performance excites us, and short-term underperformance often makes us anxious. However, long-term discipline is what truly builds wealth. Staying invested with clarity of purpose and a well-defined goal almost always works better than chasing yesterday’s winners. In investing, it is not about being perfect. It is about disciplined risk management and consistent long-term behaviour.
Successful investing is less about finding the perfect fund and more about avoiding perfectly avoidable mistakes.
Shreedhara is the Founder & Director of Ara Financial Services Pvt. Ltd. He has an experience of over 2 decades in Financial Service Industry with majority of it in guiding individuals and institutions on their investments requirements.
