If a scheme is not performing for a year, can I switch?

I want to invest in SBI Magnum MultiCap, SBI Contra, SBI Magnum MidCap and SBI Magnum Balanced Fund for a period of five years. After a year if any one of the above mutual fund is not performing well, can I transfer the fund to another scheme which is performing better.
--Chakma Darsu

To begin with, it is not a great idea to put all your eggs in the same basket. When you invest in a single mutual fund house, your fortunes are linked to the performance of the fund house. It is always better to diversify across fund houses.

You are investing in equity mutual fund schemes. You should invest in them with a long-term investment horizon in mind. And you should give at least three years for the schemes to perform. You can't jump in and out of the schemes based on their short-term performance. After that If a scheme is under-performing its category and benchmark consistently, you should put it in the watch list. Find out the reason for its under-performance. This is to find out whether the fund manager has taken any contrarian bets. If you are not convinced about the reasons, you may consider selling your investments and shifting the money to a better performing scheme in the same category.


Lastly, always choose the mutual fund schemes based on your risk profile, and do not diversify just for the sake of diversification. Over-diversification leads to lower returns and duplication of portfolios.