There could be several factors that may have contributed to the low XIRR (Extended Internal Rate of Return) of 6% in your mutual fund SIP (Systematic Investment Plan) after two years.
Here are a few possible reasons:
1. Market Performance: The overall performance of the market can significantly impact the returns of your investments. If the market experienced a downturn or remained stagnant during the period you invested, it could have affected the returns of your mutual fund investments.
2. Fund Selection: The performance of individual mutual funds can vary based on various factors such as the fund manager’s strategy, investment philosophy, and the underlying assets in which the fund is invested. It’s possible that the funds you selected may not have performed as well as expected due to their specific investment choices.
3. Sector Concentration: While diversification is generally a good strategy, having a significant allocation of 30% to a single sector (financial) could expose your portfolio to the performance of that sector. If the financial sector underperformed during the period, it could have impacted your overall returns.
4. Market Timing: The timing of your investments can play a role in the returns generated. If you started your SIP during a period when the market was at a high point and experienced a subsequent decline, it could have affected your overall returns.
5. Economic Factors: Economic factors, such as interest rates, inflation, and geopolitical events, can influence the performance of mutual funds. If there were adverse economic conditions during the period, it might have impacted the returns.
6. Investment Horizon: Two years is a relatively short investment horizon, and the returns generated during this period may not be reflective of the long-term potential of your investments. Mutual funds are typically recommended for long-term investment goals, and their performance can fluctuate over shorter periods.
It’s important to note that past performance does not guarantee future results. If you have concerns about your mutual fund investments, it may be helpful to review your portfolio with a financial advisor who can assess your investment strategy, and risk tolerance, and suggest appropriate adjustments based on your goals.
