Mutual funds not in sync with your goals
This is the first test you need to run. Let us take an example. If you have a goal maturing in 3 years, what do you do? You must obviously look for something like a medium duration debt fund where risk is contained and returns are reasonable. Instead of that, had you chosen an equity fund what would have happened? Even if it is the best in class equity fund, 3 years is too short a time for an equity fund to perform to its potential. This equity fund that you invested may have given 16% annualized returns over the last 10 years. Remember, there is a vast difference between 10-year returns and 3-year returns. At the end of three years, when you actually need the money you will realize that the fund is quoting below its NAV due to a sharp sell-off in the Nifty. This is a classic case of being disappointed with your fund just because you got your fitment wrong.
Bought mutual funds at random
This, in a way, is an extension of the previous argument. What should drive your mutual fund investments? Ideally, it should be the length and the depth of your goals. If you want substantial wealth creation over the long term then you must opt for equity funds. Buying a debt fund in this case may be safe, but you are taking on lesser risk than you can afford to take. There is another aspect to random buying of funds. Don’t buy mutual funds just because some eager salesperson makes a hard sales pitch. You need to first check if it fits into your needs and also whether this is the best among the various options available in the market.
You got into a mid cap fund and after 2 years are still in losses
This is entirely likely if you had got into mid cap funds in early 2018 and are reviewing it in the end of 2019. This has been a torrid period for mid caps. Over the last 2 years, the mid cap index has fallen by nearly 24% and your mid cap fund is most likely in losses too. There are two reasons for the disappointment with the mutual fund you selected. Firstly, you got into a mid cap fund at peak valuations and at a time when the premium that mid caps enjoyed over large caps was at record highs. That should have set the alarm bells ringing. Secondly, a high risk investment like a mid cap fund must always be initiated with a worst case scenario. At 10% depletion in the index, you should have ideally got out. That probably explains your disappointment.
Held on to loss making funds for too long
When you buy mutual funds some bad years are inevitable. But in case of equity funds, it typically averages out over 8-10 years. The exception is if there is a structural problem with the fund. This is eminently possible in the case of equity and debt funds. For example, if you were invested in sectoral funds like pharma or infrastructure, you are most likely in losses. Similarly, if you have invested in credit opportunities funds and the fund had exposure to debt of companies like IL&FS, DHFL, Jet, Essel Group or RCOM, you are surely sitting on structural losses. While structural issues in debt are hard to deal with, equity fund cycles can be handled with SIPs.
Selected the wrong plan and the wrong option
This is a micro issue but can be equally relevant in causing disappointment. For example, you may have opted for a dividend option but would have later realized that you are losing sizable chunk of your returns to DDT. Also, dividend plans in the case of equity funds are not very adept at creating wealth as the benefit of compounding is not there. Lastly, there is the choice between regular plans and direct plans. Direct plans are a lot more economical as they come without the sales commissions. This can make a huge difference to your returns in a tough year and leave you less disappointed.