1. Instead of hanging on to bad funds, it makes sense to dump them unemotionally, by systematic redemption and reinvestment in a tax-efficient manner, instead of ruining your existing portfolio.
2. While underperformance of one year may be tolerated, two or three years of falling behind can get frustrating, especially if you’re relying on them for a particular average amount of return each year, and if they keep falling short, it may jeopardize your chances of meeting linked goals.
3. Warren Buffet's popular quote in this regard is:- “Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted in patching leaks."
4. Before redemption, however, their comparison has to be meticulously done with an appropriate benchmark index and industry peers.
5. If the funds' parameters and ratings have gone down continuously over all quarters of a year, as compared to their peer schemes, it would be better to review and weed them out (no point in re-balancing them like stock averaging) for better peer funds, within your overall asset allocation and risk profile.
6. SWPs can also be used to book profits in these funds in a phased manner, for a possibly better average selling price over time.
7. Those funds which were included in anticipation of benefitting from a particular situation should be monitored more closely, and exited if the expected situation did not materialize or the objective was achieved.
8. Exit those funds that are inconsistent in their declared objectives, benchmarks and asset allocation, and become inappropriate for you.
9. In reality, our aversion to booking a loss is stronger than booking a profit, because of the feeling of regret about having made a wrong selection.
10. But we have to overcome this guilt, as sensible investing also means releasing capital from a loss-making investment and putting it to an alternative use.
11. Usually, lumpsum redemption of a non-performing or irrelevant fund, for a better fund, works well when:-
a) You are in urgent need of money,
b) CG taxes are insignificant,
c) You estimate a steep northward movement in the new target fund, or
d) Current fund is a nightmare.
12. In other cases, STP / SWP (with simultaneous SIP) works better as:-
a) You can avail CG tax benefits,
b) New funds get Cost-averaged,
c) Peak level buying is avoided,
d) There's chance of salvaging loss.
2. While underperformance of one year may be tolerated, two or three years of falling behind can get frustrating, especially if you’re relying on them for a particular average amount of return each year, and if they keep falling short, it may jeopardize your chances of meeting linked goals.
3. Warren Buffet's popular quote in this regard is:- “Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted in patching leaks."
4. Before redemption, however, their comparison has to be meticulously done with an appropriate benchmark index and industry peers.
5. If the funds' parameters and ratings have gone down continuously over all quarters of a year, as compared to their peer schemes, it would be better to review and weed them out (no point in re-balancing them like stock averaging) for better peer funds, within your overall asset allocation and risk profile.
6. SWPs can also be used to book profits in these funds in a phased manner, for a possibly better average selling price over time.
7. Those funds which were included in anticipation of benefitting from a particular situation should be monitored more closely, and exited if the expected situation did not materialize or the objective was achieved.
8. Exit those funds that are inconsistent in their declared objectives, benchmarks and asset allocation, and become inappropriate for you.
9. In reality, our aversion to booking a loss is stronger than booking a profit, because of the feeling of regret about having made a wrong selection.
10. But we have to overcome this guilt, as sensible investing also means releasing capital from a loss-making investment and putting it to an alternative use.
11. Usually, lumpsum redemption of a non-performing or irrelevant fund, for a better fund, works well when:-
a) You are in urgent need of money,
b) CG taxes are insignificant,
c) You estimate a steep northward movement in the new target fund, or
d) Current fund is a nightmare.
12. In other cases, STP / SWP (with simultaneous SIP) works better as:-
a) You can avail CG tax benefits,
b) New funds get Cost-averaged,
c) Peak level buying is avoided,
d) There's chance of salvaging loss.