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ICICI Prudential Mid-Cap Fund did fall quite a lot in the past one month. If we look at its trailing one-month returns, it stands at negative 8.06 per cent. In the past one month not only has it underperformed its benchmark – S & P BSE 150 Mid- Cap TRI – but has also done so in its category. This surely might have invoked a sense of fear in you. However, taking decisions based on short-term performance of equity is not a wise thing to do. Therefore, to understand whether you should exit or not, we need to look at the long-term performance of the fund. The following table would show you the trailing performance of the funds across different periods. 

As can be seen from the above table, the fund has been an underperformer against both its benchmark as well as its category. Only in the trailing period of seven years was it successful in beating its benchmark and gave similar returns as its category average. Even its current Sharpe ratio and Sortino ratio are negative. Higher these ratios mean better the fund. One of the reasons for such a performance may be contra sector allocation of the fund. For example, as of now, the metal sector is not favourable among the categories, but its exposure to it is more as compared to its category. Similar is the case of the energy sector. This is what might be dragging the performance of this fund in such a volatile market. If you have recently invested and the investment amount is not that big then you can go ahead and exit this fund without caring about the taxation and exit load. However, if your investment amount is big or you have invested through SIP then wait till your investment completes one year to avoid any exit load. Overall, if you are a long-term investor and have attached the fund to a goal, it would be advisable to wait as in the next cycle it may perform better. 

Is it better to focus more on passive investing as against active investing? -Rohit Madan 

Passive investing in very much appreciated globally. Even the founder of the Vanguard Group, late John Bogle, who is also known as the ‘father of the index fund’, quotes in ‘The Little Book on Common Sense Investing’ that “you will almost never find a fund manager who can repeatedly beat the market. It is better to invest in an indexed fund that promises market returns with significantly lower fees.” An index fund or Exchange Traded Fund (ETF) is nothing but investing in an index that gives you returns identical to the index.

However, here you need to remember that as you are investing in the index you cannot expect any outperformance with respect to it. And in any case if you are coming across any such case then don’t invest in such an index fund or ETF.

An index fund or ETF must not outperform the index and neither should it severely underperform the index. This results in tracking error. Lesser the tracking error better is the index fund. In developed nations with stronger economy, there are fewer chances of beating the index.

However, in a developing economy like India, there are a lot of opportunities available for a fund manager to generate an alpha over index. This is because we still have many stocks that the markets have not yet discovered. But this holds true in case of mid-cap and small-cap space.

In case of large-cap funds, not all but most of them are underperforming their benchmarks. Therefore, if you wish to invest in a large-cap fund, index fund or ETF – Sensex, Nifty 50, S & P BSE 100 or Nifty 100 – would be a better option. The below table will show you the performance of index funds, large-cap funds and mid-cap funds.

As can be seen from the above table, active funds are able to beat the index funds, at least on a trailing basis. But yes, Bogle was right when he said that no fund manager can consistently beat the index, at least the large-cap funds.

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