Mutual fund not performing? Here's how experts say you should review it

One-year returns often become the deciding factor for investors reviewing their mutual fund portfolios. A fund that has recently outperformed attracts fresh money, while one that has lagged is quickly shown the exit door. But experts say relying solely on returns can lead to poor investment decisions.

Instead, investors should evaluate how consistently a fund has performed across market cycles, the risks it takes to generate returns and whether it continues to follow its stated investment strategy. Looking beyond headline returns can help investors avoid performance chasing and build portfolios better aligned with their long-term goals.

According to Debasish Mohanty, Chief Strategy Officer at The Wealth Company Mutual Fund, investors should assess a fund's performance over longer periods and compare it with both its benchmark and peer group instead of focusing only on recent returns.

"Returns are only part of the picture. Investors should also look at consistency across different market cycles, risk-adjusted returns, performance versus benchmark and peers over longer periods, portfolio quality and whether the investment philosophy has remained consistent," he said.

Jiral Mehta, Senior Manager, Research at FundsIndia, agrees that consistency matters more than a single year's performance.

"Consistency of performance across market cycles, not just the latest number, is important. How the fund behaves in a falling market, its downside capture, matters as much as how it performs in a rising market," she said.

Mehta added that investors should also examine whether a fund's portfolio remains aligned with its stated investment style and whether it has become excessively concentrated or drifted away from its mandate over time.

Experts say a periodic review of mutual fund investments is important, but the objective should be to determine whether the fund still deserves a place in the portfolio rather than simply identifying the best recent performer.

Mohanty said investors should ask whether the fund continues to match their financial goals, investment horizon and risk appetite. A fund that delivers slightly lower returns but does so with lower volatility may be more suitable than a high-return fund that takes significantly greater risks.

Mehta recommends comparing a fund with its benchmark and category peers over multiple market cycles rather than reacting to short-term fluctuations. If the fund has consistently lagged both over an extended period or has undergone significant changes in its investment process, management team or mandate, investors may consider reviewing their investment.

Experts also caution against switching funds based solely on recent rankings or star ratings, as these often reflect past performance rather than future prospects.

"The best fund isn't the one with the highest recent return. It's the one that consistently supports an investor's long-term goals at a level of risk they can actually live with," Mohanty said.

Returns do matter, but they should be viewed alongside factors such as consistency, risk management, benchmark performance, portfolio quality and investment discipline. A more comprehensive review can help investors avoid unnecessary fund switches and stay focused on long-term wealth creation.

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