As India celebrates its 80th Independence Day on August 15, 2026, financial experts are highlighting the importance of portfolio reviews beyond traditional loss avoidance. According to reports from Zee Business, money sitting for years in investments that generate little or no meaningful return can significantly hurt wealth creation, often described as 'dead money' due to the opportunity cost involved. However, mutual fund experts Hemant Rustagi and Vishwajeet Parashar caution against labeling every underperforming fund as dead money, emphasizing that funds should be assessed against their category, benchmark, and peers while considering the reason and duration of underperformance. Rustagi specifically warns against treating every short-term underperformer as dead money, stressing that a fund should be assessed over a sufficiently long period.
Experts recommend a systematic approach to identifying underperforming investments. As reported by Zee Business, Parashar suggests that consistent underperformance against benchmark and peer group over eight to 10 quarters, or two to three years, should prompt a portfolio review. Rustagi emphasizes that a few weak quarters do not necessarily mean a fund has become dead money, noting that market cycles, sector rotations, and temporary strategy changes can cause even good funds to underperform. The assessment should consider whether weakness is due to broader market conditions or specific to the fund's investment approach. Parashar adds that investors should compare the fund with its peer group and benchmark, with consistent underperformance over eight to 10 quarters being a reason to reconsider the investment.
According to Zee Business reports, investors must distinguish between category-wide underperformance and fund-specific issues. Rustagi explains that if a large-cap fund delivers low returns during a period when the broader large-cap segment lags mid-and small-cap stocks, this alone does not make the fund a poor investment. Large-cap funds continue to provide exposure to established companies and stability, while even good fund managers' investment philosophies may not work during certain market phases. Investors should first establish whether weakness is due to broader market conditions or is specific to the fund's approach. Parashar suggests a practical question for investors: 'If I had fresh money today, would I still invest in this fund?' If the answer is yes, there may be reasons to continue holding the fund after considering its long-term strategy, category and performance. However, if the answer is no because the fund has consistently underperformed its peers or concerns exist about its investment approach, investors should review whether switching makes sense.
As reported by Zee Business, mutual funds should not be evaluated solely based on absolute returns, as they are relative-performance products. Rustagi provides an example where a mid-cap index gains 2% and a mid-cap fund gains 3-4%, technically outperforming despite the return appearing modest to investors. The focus should be on whether the fund consistently trails the appropriate benchmark and comparable funds in the same category. This relative approach helps investors understand whether their fund's performance is truly underperforming or simply lagging due to market conditions. The review process should not automatically result in a sale - investors should first examine what has changed in the fund, including portfolio quality, fund manager decisions and investment style.
Experts warn against allowing emotions or original purchase price to dictate investment decisions, emphasizing the concept of 'sunk-cost fallacy'. According to Zee Business reports, Parashar uses the example of an investment falling from ₹1 lakh to ₹95,000, where the relevant question is not waiting for the investment to return to ₹1 lakh, but considering where the ₹95,000 can potentially generate better returns. This approach prevents investors from delaying decisions based on emotional attachment to their original investment amount, focusing instead on opportunity cost and future potential returns. Parashar explains that just because an investor has already put money into a fund does not mean they should continue holding it if its future prospects no longer appear attractive. The objective is not to keep changing funds based on short-term performance - rather, investors should ensure that their money remains allocated to investments that continue to fit their goals, risk profile and long-term strategy.
