Three Key Reasons Why Your Mutual Fund Portfolio Isn’t Growing

You’re a trend chaser

The number one reason why most investors lose out on long term gains from mutual funds is the pernicious habit of chasing trends rather than anticipating them. For instance, we’re likely to see increased levels of interest in GILT funds now that the 10 years has rallied all the way to 6.35 per cent, and G Sec funds have returned 15 per cent plus over the past year. Similarly, many investors will exit credit risk funds now, after credit events have already dragged them down and brought them to attractive valuations. In early 2018, investors rushed into small-cap funds in droves, enamoured by their 2017 returns. Of course, the past year and a half were abysmal for small-cap funds because they had already raced ahead of their fair valuations1. All these are examples of trend-chasing and should be avoided. Wise mutual fund investors do the reverse. They anticipate trends and get in ahead of the bullish reversals, and stay put patiently waiting for the tide to turn in their favour. 

You never follow the principle of asset allocation

For most individual investors, “Mutual Funds” are synonymous with “Stock Markets”. In other words, they never look beyond equity funds. In doing so, they invest in a “binary” fashion – they’re either tuned out completely or all into equities. Smart investors, on the other hand, follow sound principles of asset allocation and manage their portfolios in a top-down manner. If valuation indicators point to extraordinarily rich valuations in a certain segment (as is the case with large caps today), they do not continue to stay invested against the odds, assuming that “this time, it’s different”. They rebalance their portfolios in favour of debt funds. Similarly, when equity markets correct and start approaching fair valuations, they tilt their asset allocation towards equities using STP’s to stagger their investments back in. Above all, they understand that just because they got in or got out, markets will not immediately start moving in their anticipated direction! They remain patient and wait for trends to play out after the fading of the invariable hysteria that characterises all securities markets at some time or the other. 

You’ve got too many people advising you

When it comes to mutual funds, too many cooks do indeed spoil the broth! While it’s not advisable for non-expert investors to invest in direct plans, having too many people advising you will also certainly prove to be detrimental for you as well. Each advisor may have a different viewpoint and also have a vested interest in taking down the other’s recommendation. Caught in this melee, you’ll be trapped in a web of confusion, indecisiveness and ultimately – inertia. Instead, recruit just one trusted advisor whom you believe is competent as well as conflict-free, and concentrate your mutual fund investments with him or her. You’ll find that you’re able to make decisions more quickly, your portfolio will also be a lot less scattered, and your overall asset allocation, a lot easier to maintain and fine-tune. When it comes to mutual fund advisors; go ahead, put all your eggs in one basket – and watch that basket closely!