Short-term declines in mutual fund portfolios often lead investors to question whether they are invested in the right schemes or plans. One common misconception is that losses in mutual funds are linked to the type of plan—regular or direct. However, financial experts say short-term portfolio movements are usually driven by market volatility, global developments, or geopolitical events rather than the structure of the plan itself. While direct plans may offer lower expense ratios compared to regular ones, switching between the two requires careful consideration of taxation, diversification, and long-term investment goals.

A similar situation was faced by Vijay, a 43-year-old IT professional from Haryana and a viewer of The Money Show on ET Now. His mutual fund portfolio, originally created by his father in 2013 and transferred to him in 2023, is currently valued at around Rs 31 lakh against a total investment of Rs 15.5 lakh.

The portfolio consists entirely of regular plans from a single fund house – SBI Mutual Fund and includes schemes such as SBI Equity Hybrid Fund, SBI Contra Fund, SBI ESG Fund, SBI Consumption Opportunities Fund, SBI Focused Fund, and SBI MNC Fund. Vijay had also been investing through SIPs earlier, but stopped contributions in October 2025.

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Recently, he noticed that the value of his portfolio declined by around Rs 1.5 lakh in just 12 days. This led him to believe that being invested in regular plans could be the reason behind the loss, prompting him to consider redeeming the investments and moving to direct plans. He is also planning to restructure his portfolio and use the available long-term capital gains exemption of Rs 1.25 lakh before March 31.

Vijay also proposed a new portfolio allocation where 50% would be invested in flexi-cap funds such as Parag Parikh Flexi Cap Fund and HDFC Flexi Cap Fund, around 15% in midcap funds, including HDFC Midcap Fund and Edelweiss Midcap Fund, about 15% in global equities, and nearly 10% in gold.
In addition, he continues to invest Rs 90,000 per month through SIPs and aims to build a corpus of around Rs 1 crore within five years. He also wants to know whether his diversification plan is appropriate and which funds may be suitable for long-term retirement planning.

Existing portfolio analysis

According to Vishwajeet Parashar, a mutual fund expert, the first issue in Vijay’s portfolio is concentration risk. All the investments are currently with a single asset management company. While SBI Mutual Fund is the largest fund house in India, having all investments within one AMC may not be ideal. Diversifying across different fund houses can help reduce risk and improve portfolio balance.
However, Parashar advises Vijay not to redeem the entire portfolio at once. “He should diversify across AMCs for better diversification, and should not idly redeem the entire 30 lakhs in one chunk and he should withdraw slowly and gradually because otherwise, he would draw a good amount of capital gain tax,” Parashar said.

Since Vijay invested around Rs 15 lakh and the current value is close to Rs 30 lakh, the capital gains amount to roughly Rs 15 lakh. Redeeming the entire amount in one go could result in a capital gains tax of nearly Rs 1.8 lakh. Instead, he suggests withdrawing the money gradually across financial years. This staggered approach can help reduce the tax burden and avoid exiting the market at a single point.

He also recommends using the available long-term capital gains exemption of Rs 1.25 lakh before March 31 by redeeming units accordingly from selected funds.

Within the current portfolio, Parashar believes that two schemes—SBI Contra Fund and SBI Focused Fund—are strong performers and can be continued. The remaining funds may be gradually redeemed as Vijay restructures his portfolio and diversifies across fund houses.

“He can go slowly and instead of timing the market also in one shot, so it would be better if he can take out a few lakhs this financial year and maybe a few lakhs in the next financial year, so that would stagger the investment also. Having said this, two of his funds within the SBI category, SBI AMC, are good,” Parashar said

“So, he should continue with that like the SBI Contra Fund and SBI Focused Fund. The rest of the funds he can think of withdrawing. And yes, he is definitely right. He should enjoy this capital gain benefit of 1.25 lakh before March 31st, so he can withdraw from other funds and take this advantage,” the expert further said.

Also Read | Large, mid and small cap mutual funds see rising inflows in February. Is the shift back to equities underway?

Decline in portfolio – Regular plan or market volatility

Addressing Vijay’s concern about the recent decline in his portfolio, Parashar clarified that the loss is not linked to the fact that the funds are regular plans. The fall is largely due to market volatility and geopolitical tensions affecting equity markets currently. The difference between direct and regular plans lies primarily in the expense ratio, as direct plans have lower costs because they do not include distributor commissions.

However, investors should note that shifting from regular to direct plans is treated as a redemption followed by a fresh investment. Even if the switch is within the same fund house, it will still be considered a redemption for tax purposes. Therefore, investors should plan such transitions carefully while keeping tax implications in mind.

Proposed allocation

Looking at Vijay’s proposed allocation, Parashar believes the overall selection of funds is good but suggests avoiding duplication within categories. Instead of investing in two flexi-cap funds, he recommends choosing Parag Parikh Flexi Cap Fund, which also provides some exposure to global equities. Similarly, among the midcap options, he suggests continuing with HDFC Midcap Fund rather than holding two midcap schemes.

Along with these funds, Vijay can continue with the SBI Contra Fund and the SBI Focused Fund. This combination would provide diversification across fund houses and investment styles. Since Vijay is also planning to invest directly in gold and silver, he may not need additional multi-asset or multi-cap funds for diversification.

From a financial goal perspective, Vijay appears to be on track. With SIP contributions of Rs 90,000 per month and assuming an average return of around 12% annually, his SIP investments could grow to roughly Rs 73 lakh over the next five years. His current portfolio value of about Rs 29.5 lakh, after the recent decline, could potentially grow to around Rs 52 lakh over the same period. Together, this would take the total corpus to approximately Rs 1.25 crore, which is higher than his target of Rs 1 crore.

Also Read | Gold and silver ETFs slip up to 3% as rising crude prices dampen rate cut hopes. Is it time to buy or wait?

Retirement planning

For long-term retirement planning, Parashar suggests that Vijay may eventually consider hybrid-oriented funds that offer better downside protection. Funds such as ICICI Balanced Advantage Fund or ICICI Multi Asset Fund can help balance equity exposure and reduce volatility during market downturns.

He recommends that Vijay continue with his equity-oriented portfolio for now and gradually move a portion of the corpus toward hybrid or debt-oriented funds about a year before retirement to safeguard the accumulated gains.

Overall, the key takeaway for investors is that short-term declines in mutual fund portfolios are usually linked to market movements rather than the type of plan chosen. While shifting from regular to direct plans can reduce costs over time, not offset the loss incurred in the portfolio. So, such decisions should be made carefully with attention to taxation, diversification, and long-term investment goals.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

If you have any mutual fund queries, message on ET Mutual Funds on Facebook/Twitter. We will get it answered by our panel of experts. Do share your questions on ETMFqueries@timesinternet.in alongwith your age, risk profile, and Twitter handle.

Gold prices slipped on Friday and were on track for a second consecutive weekly decline, pressured by a stronger dollar and inflation worries driven by the Iran war, which weighed on rate-cut ‌expectations.

Spot gold fell ⁠0.5% ⁠to $5,052.15 per ounce, by 1:44 p.m. ET (1744 GMT), and was down over 2% for the week so far.

U.S. gold futures for April delivery settled 1.3% lower at $5,061.70.

“While the market remains strongly bullish gold long term on asset allocation drivers, bullion is grinding towards lows since the Iran conflict started with the dollar at nearly four-month highs,” said Tai Wong, an independent metals trader.

The U.S. dollar was on ⁠course for ‌a weekly rise, making greenback-priced bullion less affordable for other currency holders.

Commerzbank in a note said expectations of a more restrictive monetary policy are ⁠the main reason why the price of gold has come under pressure.
While gold is prized as a traditional hedge against inflation and periods of uncertainty, elevated rates typically curb its appeal by increasing the cost of holding bullion. Data showed U.S. consumer spending increased slightly more than expected in January, which together with continued strength in underlying inflation and the war in the Middle East bolstered economists’ views that the Federal Reserve would ‌not resume cutting interest rates for some time.

President Donald Trump said the U.S. was going to be hitting Iran “very hard over the next week”, shortly after issuing a partial ⁠30-day waiver for purchases of sanctioned Russian oil.

Oil prices dipped but were on track for weekly gains as Gulf disruptions due to the conflict broadly persisted.

Elsewhere, resumption of some flights from Dubai has allowed gold flows from this major global trading hub to restart partially this week, three sources told Reuters.

Among other metals, spot silver lost 3.3% to $81.00.

Platinum fell 4% to $2,047.20 and palladium shed 2.5% to $1,569.00. The sister metals are on track to post weekly losses.

Global crude oil prices could rise to USD 120 per barrel in the short term and potentially reach USD 150 per barrel if war extends over a month and geopolitical tensions continue in West Asia, Kayanat Chainwala, Assistant Vice President, Kotak Securities, told today.

“Near-term crude prices are likely to move in the USD 85-120 range for WTI and USD 90-125 for Brent. If the conflict escalates and supply disruptions persist for several weeks, prices could rise even further, possibly approaching USD 150 per barrel. But in the short term, USD 120 is more likely,” Chainwala said, emphasizing the role of supply disruptions in pushing crude markets higher.

She explained that the ongoing turbulence in the Strait of Hormuz and the state of Hormuz situation has already caused losses of approximately 10-12 million barrels per day.

“This is a significant disruption, not a perceived risk. Earlier this year, the market was facing a glut of 4-5 million barrels per day, but the current losses are offsetting that surplus and pushing the market toward a deficit,” she said.

Chainwala added that emergency reserves, including the International Energy Agency’s 400-million-barrel release, would only cover about 20 days of lost supply, which would be insufficient if the disruption continues for an extended period.

“Any prolonged disruption through this trade will be bullish for crude oil and negative for other commodities, as it ignites inflation concerns and could delay interest rate cuts,” he noted.
She also addressed potential price corrections. “If the situation de-escalates, the geopolitical premium built into oil prices would vanish. Prices could fall sharply to USD 55-65 per barrel. Before the disruption, oil markets were already bearish due to macroeconomic concerns and a supply glut,” she said.On regional flows, she said the Strait of Hormuz is currently allowing only limited passage.

“Very few barrels are passing through Hormuz — around 2-3 million barrels per day, compared to normal flows of about 20 million barrels per day. Certain countries are receiving preferential access, but overall, the route remains highly restricted,” Chainwala added.

She also discussed demand-side factors, highlighting that China, a major importer of crude, has set a modest growth target of 4.5-5 percent this year with no major stimulus, which may limit sustained price pressure. Seasonal demand during travel months in May and June may have some impact, but other factors are unlikely to hold crude prices at elevated levels for long.

Regarding the domestic market, Chainwala said, “On MCX, crude prices could rise 20-30 percent from current levels of around Rs 8,300, reaching Rs 10,500-11,000, depending on how long the disruption continues.”

She concluded by warning that prolonged conflict or significant escalation could push prices even further, but if negotiations or minor attacks continue without major disruption, the crude market is expected to remain volatile yet within a USD 85-120 range.

European shares extended their declines on Friday and marked their second consecutive weekly loss, as the escalating conflict in the Middle East and inflation worries dented risk appetite.

The pan-European benchmark STOXX 600 closed 0.5% lower. All major regional bourses were in the red, posting marginal weekly falls.

Industrial stocks were the biggest drags ‌on the index, down ⁠1.8%, ⁠with Siemens Energy down 5.7% and Rolls-Royce off 5.3%.

Miners experienced the biggest percentage loss, down 3.3%, as prices of silver tumbled over 3%, copper fell over 1% and gold prices also ticked lower.

Global markets extended declines this week as the U.S.-Israeli war on Iran approached the two-week mark. U.S. President Donald Trump said the U.S. was going to be hitting Iran “very hard over the next week”, prompting markets to brace for a drawn-out conflict and reassess interest-rate expectations as energy-driven inflation concerns resurfaced.

Pascal Koeppel, chief investment officer at Vontobel SFA Investment ⁠Management, said ‌that both Iran and the U.S. had interests in stopping the war. Iran’s interest is in re-opening the Strait of Hormuz, he said, while for the U.S. a priority is reining ⁠in mounting defence costs before the midterm elections in November.
“It’s short term in nature and the impact on inflation and rates is not as big as market fear. But at the moment, the fear is larger so the European markets are correcting,” he said. Markets have priced in one quarter-point interest-rate hike by the European Central Bank by the end of the year and see a nearly 75% chance of another similar-sized move, per data compiled by LSEG. This contrasts with expectations earlier in the year that a rate cut was coming.

Oil prices were about 1% ‌higher on Friday, as it became clear that the Strait of Hormuz remained closed.

Energy stocks far outperformed others this week with a gain of nearly 5%. Economically sensitive banks fell again, dropping 1.2%. Standard Chartered and HSBC, the ⁠two global banks most exposed to the war with Iran according to Reuters analysis, extended their monthly declines to over 15% each. Data showed harmonised inflation in France rose 1.1% year-on-year in February, while the British economy grew by 0.2% in the three months to January, below expectations. Among individual moves, BE Semiconductor Industries shares jumped 5.6% after the chip-equipment maker fielded takeover interest, Reuters reported. Berkeley Group cautioned that the conflict in the Middle East was weighing on risk sentiment, while reaffirming its annual profit outlook, sending shares of the home builder 1.5% lower.

Zalando climbed about 7% after Bernstein upgraded the online fashion retailer to “market perform” from “underperform.”

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