SIP Underperforming? Is It Your Fund, the Market or Your Portfolio?

Two investors put certain amount of funds a month into mutual funds for three years. One checks her account and sees an XIRR of 7%; the other sees 12%. The natural reaction is to assume the first investor chose a poor fund. But those numbers are hypothetical, and even in a real portfolio they would not establish that conclusion.

Perhaps one scheme invests in small companies while the other holds large companies. Perhaps their instalments went in on different dates, or one strategy has recently fallen out of favour. The first investor might even own a sound fund that now takes more risk than her approaching goal allows. To diagnose an underperforming SIP, start with the return number, then investigate what produced it.

Does a Low SIP XIRR Mean Your Mutual Fund Is Underperforming?

An SIP is how you invest; a mutual fund scheme is what you invest in. Its published performance usually describes what happened to an investment made at the beginning of a stated period. Your SIP instead consists of many purchases at different NAVs. The first ₹10,000 instalment has had much longer to grow than the most recent one.

XIRR estimates your annualised personal return while accounting for the date and amount of each cash flow. That makes it useful for checking your own experience, but it answers a different question from the fund's published point-to-point return. An investor whose SIP shows 7% XIRR cannot conclude from that figure alone that the fund manager delivered only 7% over the same period.

Consider a fund that rises strongly at first, attracting most of your contributions later, and then corrects. The scheme's return from the start date and your SIP XIRR can differ because more of your money arrived near the later, higher NAVs. Contributions, withdrawals and dates matter too. If you want to compare your experience with a benchmark, simulate the same ₹10,000 payments on the same dates into that benchmark; comparing SIP XIRR directly with an index's lump-sum CAGR mixes two methods. INDmoney's XIRR versus CAGR explainer goes deeper into that distinction.

What Rajkamal Tiwari Says About Reviewing an Underperforming SIP

In a September 23, 2026 Moneycontrol interview, Union AMC CEO Rajkamal Tiwari argued that short-term volatility should not, on its own, drive a decision about a fund. A market segment or manager's strategy may lag for a period, and he said there is no fixed formula for how many months or years an investor should give every underperforming scheme. He urged investors to look at longer-term consistency and the purpose of the investment rather than repeatedly reacting to recent returns.

That is a useful starting point, not a rule to wait indefinitely. Tiwari also distinguished between someone with 20 to 25 years before a goal and someone whose once-distant goal is now only a year away. The same exposure can have very different consequences for those investors. The practical task is to separate three possibilities: the market segment is weak, the individual fund is weak, or the portfolio no longer suits the investor.

First Identify What Is Underperforming: The Market, the Fund or Your Portfolio

A fund can disappoint while doing exactly what its mandate says. Imagine a value fund that avoids expensive companies during a growth-stock rally. If its benchmark and similar value funds also trail the broad market, its lag may reflect a style cycle. Likewise, a small-cap fund can fall when investors reassess small-company valuations. Comparing either with whichever unrelated category recently won tells you little about its execution.

A fund-specific problem looks different. Suppose its category and stated benchmark have recovered, yet the scheme keeps lagging comparable funds over several suitable periods. The manager's stock choices, excessive cash position or rising concentration may explain the gap. You would then examine whether the original investment case still holds, rather than explain every weak result as a temporary market cycle.

The third possibility is personal. A well-run mid-cap fund might be entirely reasonable for one investor, while adding too much risk to another investor's portfolio. If a home purchase is next year, or existing funds already provide heavy mid- and small-cap exposure, the scheme's quality alone cannot answer whether its allocation remains appropriate. This is why the portfolio view of returns and allocation matters alongside the return of any one holding.

Seven Checks to Diagnose a Mutual Fund's SIP Performance

Use the same observation period, scheme plan and option whenever you make a comparison. Direct and regular plans have different costs, while growth and payout options can produce different displayed figures. Then work through these checks in order.

1. Find the right benchmark. Check the scheme's latest factsheet or Scheme Information Document for its stated benchmark, then compare returns over identical start and end dates. A small-cap scheme should not be judged against the Nifty 50 simply because the latter recently did better. SEBI requires a benchmark aligned with a scheme's objective, allocation and strategy and uses total return indices, which include reinvested constituent payouts, for scheme comparisons. A benchmark is a yardstick, not a promise that the fund will beat it.
2. Check the category. Compare the scheme with genuinely comparable funds: large cap with large cap, for example, and value with funds following a similar approach where possible. If almost all comparable funds struggle, the category may be out of favour. If one fund repeatedly falls behind the group, ask what is distinctive about its portfolio. A percentile rank by itself is a clue, not a diagnosis.
3. Look across several periods. One date pair can flatter or punish a fund. Rolling returns repeat the same measurement over many starting dates: a three-year rolling return checks each overlapping three-year window, rather than only today's trailing three years. Five-year windows can add context when the fund has enough history. Look at how often and by how much it lagged a suitable benchmark and comparable strategies, including weak markets. Neither three nor five years is an automatic deadline for changing a fund. See INDmoney's rolling returns guide for the mechanics.
4. Explain the return gap. Read the AMC's monthly portfolio and commentary. Was the difference driven by a value or growth tilt, exposure to a particular sector or company size, cash holdings, stock selection, or an international fund's overseas market and currency exposure? Then test whether that explanation matches the fund's stated strategy. Valuation discipline can hurt in a rally and help when expensive stocks correct; an explanation is neither an excuse nor proof of skill.
5. Look for a structural change. Check whether the fund manager, mandate, portfolio construction, concentration, risk profile or expense ratio changed. A larger asset base matters only if it plausibly makes the scheme's particular strategy harder to execute. Ask whether downside losses increased without comparable participation in recoveries, using like-for-like periods and benchmarks. A manager change or higher cost merits investigation, but it does not by itself prove deterioration.
6. Check overlap across your funds. Three scheme names do not guarantee three different sources of return. Compare their latest disclosed holdings, largest positions, sector weights and style exposure. Two funds may own many of the same companies; another may own different names but still depend on the same mid-cap rally. INDmoney's guide to mutual fund portfolio overlap explains how to spot duplication.
7. Return to the goal. Write down when the money is needed, the amount required and the portfolio's current mix of equity, debt and other assets. Check whether the expected return needed to reach the goal has changed, while remembering that higher required returns cannot simply be assumed. If the goal is close or your capacity to absorb a loss has fallen, a fund can be performing as intended while its role in your plan needs reconsideration.

These checks form a sequence. First establish whether the SIP's personal XIRR is being compared fairly. Then determine whether the category explains the weakness. Only after that should you decide whether a fund-specific change or your own allocation explains the remaining gap.

How to Tell a Weak Market Cycle From a Weak Mutual Fund

Use a three-way comparison: the fund, its suitable total return benchmark and comparable schemes, all over the same windows. If the whole group is weak and the fund has broadly kept pace with its mandate's yardstick, the market or style is the leading explanation. If peers and the benchmark do better repeatedly, investigate the fund's investment decisions and risks. Both can be true: a weak category can contain an especially weak fund.

Here is a purely illustrative example, not historical performance data. Suppose a category's suitable benchmark returns 4%, comparable funds generally return 3% to 5%, and your fund returns 4% over the same interval. The whole segment is struggling, so the fund's 4% is not strong evidence of manager failure. If the benchmark and comparable funds are around 10% while your fund is at 4% across several meaningful windows, you have a fund-specific question. The numbers identify a question to investigate; they do not prescribe an action.

Also inspect what risk the fund took to reach its return. Two schemes with similar gains may differ sharply if one suffered deeper falls or relied on a few stocks. Conversely, a cautious strategy can trail a fast rally without having broken its mandate. The factsheet's holdings, risk disclosures and manager commentary help determine whether the gap is consistent with the strategy the investor originally chose.

Why a One-Year Return Can Mislead SIP Investors

A one-year return is a snapshot between two dates. Move either date and the picture can change, especially when a market correction or rebound sits near an endpoint. Rolling returns reduce this dependence on one chosen start date by testing many windows of equal length. They also reveal whether a fund's good long-term headline comes from a narrow stretch or more consistent participation.

Rolling analysis still needs care. Overlapping windows are not independent observations, and a fund with a short history cannot offer meaningful long windows. Choose periods that suit the investment strategy and examine both the size and persistence of gaps. Most of all, do not confuse a rolling lump-sum return series with your personal SIP XIRR: they measure different cash-flow patterns.

When a Fund Needs a Closer Review

A serious review becomes more useful when several signals point in the same direction: repeated lag against an appropriate benchmark and relevant peers; weaker rolling-return consistency; an unexplained rise in losses or concentration; or a material change in management, process, portfolio or costs. The questions are whether the gap is persistent enough to matter and whether its cause is understood.

For example, a manager change followed by a substantially different portfolio and repeated weak performance deserves more investigation than an isolated bad quarter. Check successive factsheets rather than one screenshot. Keep the comparison within the same scheme option and plan, and check whether a benchmark or mandate change affected the historical comparison. A fund can also improve after a weak period; the evidence should remain open to both outcomes.

When the Fund Is Fine but Your Portfolio Needs Attention

Suppose an investor began with one diversified equity scheme, then added two mid-cap funds and a small-cap fund after they topped performance lists. Each scheme may follow its mandate, yet the combined portfolio now depends heavily on smaller companies. Overlap can hide the concentration. The relevant question is no longer which individual fund had the best recent return, but whether the overall allocation still matches the investor's plan. INDmoney has separately explained why recent top performers may not remain on top.

A goal can change the answer even without any fund change. Tiwari's example of an investor with one year left before the money is needed illustrates the point: protecting a required sum may matter more than maximising equity exposure. Check the amount already accumulated, the remaining gap and the damage a market fall would do to the goal. Portfolio suitability depends on those facts, not simply on whether a scheme beat its benchmark.

Wait, Review or Reconsider: A SIP Health Check

For your next periodic review, record five items: SIP XIRR and cash-flow dates; the fund's return against its stated benchmark over matched periods; relevant category comparisons and rolling-return behaviour; changes in holdings, manager, risk and expenses; and progress toward the goal with your current asset mix. Together they tell a more useful story than a red or green return number.

A disappointing SIP return can come from a weak market segment, an out-of-favour style, genuine deterioration in a scheme or a portfolio that no longer suits its owner. Those causes call for different questions. Before reacting to how low the return looks, establish why it is low.