Why Your Mutual Fund Returns Are Low Despite Bull Market – Explained!

 

Are you investing in mutual funds but not seeing great returns — even though the stock market is touching new highs? You’re not alone.

Many investors feel frustrated when the Sensex or Nifty hits record levels, but their SIP returns look disappointing. Let’s break down why this happens, what causes it, and how you can fix it.

🔶 1. Your Fund Type May Not Match the Market Rally

Not all mutual funds benefit equally when the stock market rises.

Large-cap funds do well when top companies (like Reliance, HDFC, TCS) rise.

Mid-cap/small-cap funds outperform in high-growth phases, but also carry higher risk.

If you’re holding a debt fund, you’ll see almost no benefit from a stock market rally.

📌 Example: If Nifty is rising due to IT and banking stocks but your mutual fund is focused on FMCG or Pharma, your fund may not reflect that growth.

✅ Tip: Check your fund category and compare it with the segment that’s driving the rally.

 

🔶 2. You’re Checking Short-Term Returns Only

Stock markets don’t rise in a straight line — and mutual funds are long-term tools.

Even in a bull market:

Some months may show negative or flat returns.

SIPs average out the cost, so early units (bought at high NAVs) can reduce returns.

📌 Reality: A 3-month gain of Sensex doesn’t always translate to instant fund growth.

✅ Tip: Always judge mutual fund performance over 3–5 years, not 3–5 weeks.

 

🔶 3. Expense Ratio is Eating Your Returns

The Expense Ratio is a hidden charge that many investors ignore. It’s the fee fund houses take for managing your money.

Regular plans: 1.5% to 2.5%

Direct plans: 0.5% to 1.25%

If your fund earns 12% and charges 2.5%, your actual return is just 9.5% — that’s a big cut over time.

✅ Tip: Prefer Direct Plans via platforms like Zerodha Coin, Paytm Money, Groww, or AMC websites.

🔶 4. Fund Manager Performance & Strategy Matters

Every mutual fund has a fund manager who selects the stocks. If the manager:

Takes conservative bets,

Misses the top-performing sectors, or

Carries too much cash,

…your fund will underperform even in a rising market.

📌 Example: In 2023, tech stocks rallied, but some fund managers stayed away due to high valuations. Their funds missed out.

✅ Tip: Check portfolio turnover ratio and fund manager history before investing.

🔶 5. You Started SIP Recently During a Market High

If you began your SIP when the market was already high:

You bought units at expensive NAVs.

So even a market rise may only help you recover cost, not show huge profit yet.

SIP returns improve with time and market corrections.

✅ Tip: Continue SIP for at least 5 years. Don’t judge performance in first 12–18 months.

🔶 6. Your Fund May Have Reached Saturation

Some older mutual funds become too large in size (₹20,000+ crore AUM) and struggle to beat the index due to:

Limited flexibility in buying small/mid-cap stocks

Slow decision-making

Over-diversification

📌 Example: Large fund size = less agility. Smaller funds often outperform.

✅ Tip: Review AUM size and recent 1–3 year performance. Switch if needed.

🔶 7. Dividend Option Instead of Growth Plan

If you chose the Dividend Plan (instead of Growth):

Returns are paid out regularly, so compounding doesn’t happen.

NAV growth appears flat or slow.

In contrast, Growth Plans reinvest the profits, building wealth faster.

✅ Tip: Always choose the Growth Option for long-term SIPs.

🔶 8. You Are Comparing With Nifty/Sensex Without Understanding the Index

Most mutual funds are actively managed and don’t strictly follow Nifty or Sensex.

Also, the Nifty/Sensex:

Has just 50 or 30 stocks,

Is price-weighted,

Changes composition regularly

So even if Sensex is up 20%, your diversified fund may only go up 10–15% — that’s normal.

✅ Tip: Compare your fund with its benchmark index (available on AMC site) or category average, not just Sensex.

🔶 9. Too Many Funds = Poor Overall Returns

Investing in 10 different mutual funds doesn’t make you safer — it makes your portfolio unfocused.

You may have overlapping stocks

Returns get diluted

Hard to track

✅ Tip: 3–5 diversified funds are enough. Review your holdings and cut redundancy.

🔶 10. Market Rally is Narrow, Not Broad-Based

Sometimes, market highs are led by just 5–6 heavyweight stocks, not the whole market.

📌 In such rallies:

Index jumps due to Reliance, Infosys, HDFC

But 70% of other stocks/stocks in your mutual fund don’t rise much

✅ Tip: Check sector performance. Wait for broad-based growth for real gains.

🟩 Conclusion

Mutual funds are powerful, but not magic. If your returns seem low despite a market boom, it doesn’t mean your fund is bad — you just need to understand how mutual funds work differently from stock indices.

🔁 Long-term consistency
✅ Choosing the right category
💡 Avoiding common mistakes

…are key to seeing meaningful results.

🟦 FAQs – People Also Ask

Q1. Should I stop my SIP if returns are low?
No. SIPs work best during volatility. Continue them for long-term compounding.

Q2. Can I change my mutual fund if it’s underperforming?
Yes. If a fund lags behind its peers consistently for 2+ years, consider switching.

Q3. How often should I review my mutual fund portfolio?
Once every 6 months is ideal — unless major market changes happen.