Should You Exit a Fund You’ve Held for 10+ Years If It’s Underperforming Now?

You started this fund ten or fifteen years ago. It did well for years. Now it sits near the bottom of its category. Your friends say “sell it.” Your gut says “wait.”

Both reactions can be wrong. An old fund is different from a new one. It carries large gains, so selling it has a real tax cost. It may also be going through a normal weak phase.

This guide gives you a simple five-step check. It helps you decide to hold, reduce, or exit. It also shows the rupee cost of each choice, with a worked example.

Hold, Reduce or Exit: Which Signal Means What?

At Deepak Wealth Framework, we run this check in every portfolio review. Deepak Gokul holds the CWM® certification, is NISM-Series-XVII: Retirement Adviser Certified, and is an IRDAI Licensed Insurance Advisor. His firm, Deepak Wealth Framework Pvt Ltd, is AMFI Registered as a Mutual Fund Distributor (ARN-328771). The steps below follow SEBI’s benchmark rules and current income tax rules for FY 2026-27. Last updated: September 2026.

Why Is a Long-Held Fund Different?

A new fund has small gains. Selling it costs little. A 10-year-old fund is different in three ways.

• Large built-up gains. Selling can create a big tax bill in one year.
• Mixed holding periods. If your SIP is still running, the last 12 months of instalments are short-term. Units are sold on a “first in, first out” basis. But a full exit also sells these new units, which are taxed at 20%.
• Grandfathered cost. Units bought before 1 February 2018 may have a higher cost value for tax. This can lower your tax.

So the question is not only “Is the fund weak?” It is also “What will it cost me to leave?”

Step 1: Is the Underperformance Real?

A benchmark is the market index a fund tries to beat, like the Nifty 100. SEBI makes funds use the TRI version. TRI means the index return includes dividends. So it is a fair, full comparison.

Now check three things on the fund’s factsheet or a trusted fund website:

1. Rolling returns. These are returns measured over many overlapping periods, for example every 3-year window. They show consistency better than one start and end date.
2. Benchmark gap. Is the fund behind its TRI for 3 years or more?
3. Category average. Are most similar funds also behind? If yes, the problem may be the market, not your fund.

Our guide on how to spot an underperforming mutual fund explains these checks in detail.

Step 2: Is the Reason Temporary or Permanent?

Temporary reasons (often worth waiting)

• The fund’s style is out of favour. For example, value funds can lag for 2–3 years during a growth-led rally.
• Mid-cap or small-cap stocks as a group are going through a weak phase.
• The fund held extra cash to stay safe, and the market rose quickly.

Permanent reasons (often worth acting on)

• A long-serving fund manager left, and results slipped after that.
• The scheme changed its strategy, category, or was merged. SEBI rules require the fund house to tell you. It must also give you a window to exit without an exit load.
• The fund has grown very large, and it now struggles to buy smaller stocks.
• The fund keeps changing its approach, so you can’t tell what it stands for.

Step 3: What Does It Cost to Exit?

Here is a simple example. The numbers are for illustration only.

An exit load is a small fee some funds charge if you sell too early, often within one year. After 10 years, most equity funds charge none. Still, check your scheme’s documents.

How does the grandfathering rule help?

Did you buy units before 1 February 2018? Then your cost for tax can be the higher of two values. One is your actual cost. The other is the unit’s value on 31 January 2018, capped at your sale value. For many old investors, this lowers the taxable gain. Please verify the exact calculation with your tax adviser, as rules may change under the new Income-tax Act.

Step 4: What Does It Cost to Stay?

Staying is not free either. Suppose ₹10 lakh grows at 10% a year for 10 years. It becomes about ₹25.9 lakh. At 12% a year, it becomes about ₹31.1 lakh.

That 2% yearly gap costs about ₹5.1 lakh over 10 years. Compare that with the one-time tax of about ₹87,750. If the fund’s problem is permanent, staying can cost more than leaving. But no one can promise the new fund will do better. Past returns do not guarantee future returns.

Step 5: Pick One of Four Options

1. Hold. Keep the units and the SIP. Right for temporary reasons.
2. Hold units, move the SIP. Keep old units (no tax). Start fresh SIPs in a better-fitting fund. This is often the most tax-friendly choice.
3. Staggered exit. Sell in parts across financial years. Use the ₹1.25 lakh limit each year.
4. Full exit. Right when the fund has clearly changed, or your goal is near.

Before you move money, check that the new fund doesn’t hold the same stocks. Our professional portfolio review checks this overlap for you.

Frequently Asked Questions

Mutual Fund investments are subject to market risks, read all scheme related documents carefully. This content is for illustrative and educational purposes only. We deal in Regular Plans.