Hello. Why AXIS Mutual funds did not perform well in 2022 and continuing to underperform this year as well?

Ans: You've been consistently investing in Axis ELSS, Bluechip, and Midcap funds for the past 3-4 years. While these funds have a good track record, the recent underperformance of Axis funds compared to their peers has understandably raised concerns. Let's assess this situation and provide some guidance for your next steps.

1. Performance Review of Axis Funds
Short-term Underperformance: It is common for even well-managed funds to go through periods of underperformance. The Axis funds may have underperformed compared to peers in recent years, but this alone doesn’t always justify stopping your SIP.

Long-term Focus: The key aspect of mutual fund investing is to focus on the long-term horizon. Look at the 5-year or 7-year performance of the funds instead of just 1- or 2-year periods. This will give you a better understanding of their long-term consistency.

Axis ELSS Fund:
Lock-in Period: Since ELSS funds come with a 3-year lock-in period, any changes should be made with caution. You need to consider the post-lock-in performance before switching.
Axis Bluechip Fund:
Large-cap Funds: Bluechip or large-cap funds generally tend to underperform in bull markets compared to small-cap or mid-cap funds. However, they offer stability during market downturns.
Axis Midcap Fund:
Volatility: Midcap funds are known for volatility. While Axis Midcap may not have delivered as expected in recent years, midcap cycles typically show substantial gains in the long run.
2. Reasons to Stay Invested
SIP Strategy: SIPs are designed to help investors take advantage of market volatility. By continuing with your SIPs, you will benefit from rupee-cost averaging, buying more units when the market is down and fewer when it’s high.

Market Cycles: Markets move in cycles, and different sectors or styles of funds perform better at different times. The underperformance of your Axis funds could be temporary, and exiting now might cause you to miss future growth.

3. Should You Stop SIP in Axis Funds?
While switching funds could be an option, it’s important to evaluate the following factors before deciding:

When to Consider Stopping SIP:
Consistent Underperformance: If the Axis funds have consistently underperformed their category average over a long period (5+ years), you may consider moving to better-performing funds.

Poor Management: If the fund manager has changed, or there have been significant changes in the investment strategy of the fund, underperformance could persist.

When to Continue SIP:
Recovery Potential: If you believe the Axis funds are poised to recover based on market conditions, sticking with your SIPs can help you benefit from a rebound.

Diversification Benefits: If the Axis funds provide solid diversification within your overall portfolio, consider continuing SIPs to maintain balance.

4. Considerations for Switching to Other Funds
If you decide to move your SIPs to other funds, here’s what you should consider:

Consistency in Returns: Look for funds that have delivered consistent returns over different time periods. Don’t just focus on recent top performers, as they may not maintain their performance.

Actively Managed Funds: Switching to actively managed funds can give you an edge. Unlike index or passive funds, active funds offer the flexibility for managers to adjust their portfolios based on market conditions, which can lead to better returns over time.

Professional Guidance: Working with a Certified Financial Planner (CFP) can help you assess which funds align with your goals. The CFP can monitor performance and recommend changes if required, while ensuring that your portfolio remains balanced.

5. Risks of Moving Too Soon
Timing Risk: Exiting a fund during a temporary period of underperformance can result in missing future gains. Timing the market or trying to switch between funds frequently may hurt your returns in the long run.

Transaction Costs: Moving SIPs frequently might incur exit loads or taxes. ELSS funds, for instance, come with a 3-year lock-in, and selling them early will incur penalties.

6. Maintaining a Balanced Portfolio
Before making any decisions, ensure that your portfolio remains well-diversified across different asset classes and sectors. A balanced mix of large-cap, mid-cap, and ELSS funds can provide stability while offering growth potential.

Diversification across AMCs: Consider spreading your investments across different asset management companies (AMCs) to avoid concentration risk with one fund house.

Rebalancing Regularly: Review your portfolio annually or biannually to ensure it aligns with your goals and risk appetite.

Final Insights
While Axis funds may not have performed well in the recent past, it is essential to evaluate your decision based on long-term performance and market trends. It might not be wise to stop SIPs solely based on short-term underperformance. If you do decide to switch, ensure the new funds fit your investment goals and risk profile. A Certified Financial Planner can guide you in making the best choices for your financial future.

Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in