How often should I review and switch my mutual funds?

Question

I started investing in mutual funds about 2yr ago with a Rs 50k monthly SIP.

I constantly check my investment apps and feel tempted to switch to the number-one ranked fund every few months.

I want to maximize my returns over a 10yr horizon.

Is it a good strategy to keep rotating into the top performing funds?

Sachin Kabra · Accepted Answer

Constantly churning your portfolio to chase the number-one ranked fund is a guaranteed way to destroy your wealth. Mutual funds are designed for the long term but modern investment apps encourage daily portfolio checking. This ease of access leads to impulsive decisions during minor market fluctuations. Data shows that 70% of mutual fund redemptions or switches happen within just 3yr. Even worse between 90% and 97% of redemptions occur within a 5yr window. Investors are letting the fear of missing out drive their decisions instead of sticking to their financial plan. Every time you switch funds you trigger exit loads and capital gains taxes which eat into your compounding engine. You also run the risk of buying into a fund right after it has peaked while selling a solid fund right before it recovers. I highly recommend taking a behavioral assessment to understand your psychological risk tolerance before you invest further. Pick two or three low-cost funds that align with your goals and simply stop looking at the app every day. Disclaimer: All information shared above are strictly for educational and informational purposes only. It should not be construed as financial or investment advice.

How often should I review and switch my mutual funds?

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