You opened your mutual fund app this morning, and the numbers were red. Maybe they’ve been red for a few weeks. Maybe you’ve been watching the portfolio value shrink for months, and the discomfort has gone from mild concern to genuine anxiety.
First thing to say: This happens to everyone. Every single long-term investor you’ve ever heard about has sat exactly where you’re sitting, looking at a portfolio in the red and wondering what to do next.
Second thing to say: What you do in the next few weeks matters more than what the market does.
This guide will navigate you through the 7 crucial steps you take while losing money in funds. It also highlights the scenarios which can lead to loss and helps you understand the discipline strategy for mutual fund investments.
Key Takeaways
- Seeing a mutual fund loss or a negative return mutual fund during market corrections is common and often temporary
- Mutual funds go down mainly due to market volatility, sector underperformance, or short-term economic events
- Investors should avoid panic selling when mutual funds are going down and instead review the fund’s long-term performance
- SIPs may show temporary losses when markets fall, which explains why SIP is going down during corrections
- Following disciplined strategies such as diversification, reviewing underperforming mutual funds, and staying invested long term can help recover losses.
Why Are Mutual Funds Going Down?
Short answer: Because the stock market is down.
Equity mutual funds hold stocks. When stock prices fall, the fund’s NAV falls with them. This is not a malfunction. It’s just how the instrument works. It does not always happen, but mainly this is the reason. The mutual fund market down scenario is almost always a reflection of broader market conditions rather than anything specific to your fund or your investment decisions.
A few specific triggers that cause mutual funds to fall:
- Market corrections are the most common ones: Markets don’t go up in a straight line. Every major bull market in history has included multiple corrections of 10 to 20 percent along the way. The correction feels alarming when you’re inside it. In hindsight, it almost always looks like a blip on a longer chart.
- Economic slowdowns create uncertainty: When GDP growth slows, corporate earnings expectations get revised downward, and markets price that in by falling. This is rational market behaviour, not irrational panic.
- Global events: A banking crisis in the US, a war in Europe, a sudden shift in US Federal Reserve policy. Indian markets don’t exist in isolation, and global shocks create short-term selling regardless of what’s happening domestically.
- Sector-specific downturns: If your fund is heavily weighted toward a sector that’s going through a rough patch, IT during certain periods, pharma during pricing pressure phases, or real estate during rate cycles, the fund falls more than a diversified one would.
The important question isn’t just “why are mutual funds going down” but “is this a market-wide condition or something specific to my fund?” That distinction drives what you should do next.
Why SIP Is Going Down During Market Corrections?
This one confuses a lot of newer investors, and the confusion is understandable.
You’ve been investing Rs. 10,000 every month for two years. The total amount you’ve put in is Rs. 2,40,000. Your current portfolio value shows Rs. 2,15,000. So, the SIP is going down in your statement, and it feels like the whole plan isn’t working.
Here’s what’s actually happening. The units you bought in the early months, when NAV was higher, are now showing a loss because NAV has fallen since then. The units you’re buying right now, during this correction, are being bought at lower prices. They will show a profit faster when markets recover because your entry price was lower.
This is the mechanism that makes SIP investing powerful over long periods. You don’t buy all your units at one price. You buy at many different prices across many years, and downturns are the periods when you’re accumulating units cheaply. Why SIP is going down in your app is a question that sounds alarming but describes a process working exactly as intended.
The investors who benefit most from SIPs are the ones who kept investing through every market dip rather than stopping when the statements looked uncomfortable.
Are Mutual Funds Safe for Long-Term Investing?
“Safe” needs some context here.
If safe means guaranteed to never show a negative value at any point, then no, equity mutual funds aren’t safe in that sense. You will see red numbers. Multiple times over a long investment horizon.
If safe means likely to grow your wealth meaningfully over 10 to 15 years, then the historical record in India is compelling. The Sensex has recovered from every correction in its history, from the 2008 crash that wiped out over 50 percent of market value, to the COVID crash in March 2020 that seemed catastrophic now. In both cases, investors who stayed through the fall came out significantly ahead within a few years.
Are mutual funds safe for the long term?
The more relevant question is whether your investment horizon is long-term. An investor with a 15-year horizon has experienced nothing remotely concerning, even in the worst historical periods. An investor with a 2-year horizon has taken on risk that was probably inappropriate for that timeline, regardless of which funds they chose.
The instrument is appropriate, and the horizon matters enormously.
7 Smart Steps to Take When Mutual Funds Are Down
1. Stay Calm and Avoid Panic Selling
Easier said than done. Worth saying anyway.
There’s a phrase that gets thrown around in investing circles in India, “keep calm and stay happy,” which, in the context of market downturns, essentially means: Don’t let short-term anxiety drive long-term decisions. But the investing application is specifically about separating emotional state from financial action.
Panic selling is the single most effective way to convert a temporary, paper loss into a permanent, real one. When you sell during a correction, you crystallize whatever loss has accumulated. The market then recovers, as it historically has, and you’ve missed the recovery while sitting in cash or a savings account.
The investors who get hurt by market downturns are disproportionately the ones who sell at the bottom and the ones who stop SIPs during corrections. Both decisions are driven by the same emotion: Discomfort with seeing red numbers. Both decisions produce outcomes that are worse than simply doing nothing.
2. Understand Why Your Mutual Fund Is Going Down
Before doing anything, figure out what’s actually causing the mutual fund loss.
Open the fund’s factsheet. Look at the benchmark return alongside the fund’s return. If the benchmark (say, Nifty 50) is down 12 percent and your fund is down 11 percent, that’s not a fund problem. That’s a market problem. The fund is actually doing its job reasonably well in a bad environment.
If the benchmark is down 12 percent and your fund is down 22 percent, that’s a different conversation. That suggests something specific to the fund, overconcentration in a sector, a bad stock call by the fund manager, or high exposure to small-caps in a large-cap bear phase. That kind of fund-specific underperformance deserves investigation, even if you ultimately decide to hold.
Knowing why the mutual fund is going down changes what the right response looks like.
3. Review Underperforming Mutual Funds in Your Portfolio
Not all red numbers deserve the same response.
A fund that’s down because its entire category is down, all large-cap funds are falling in a broad market correction, is behaving normally and probably deserves patience. A fund that’s consistently underperforming its benchmark across multiple market cycles, both up and down, is a genuine underperforming mutual fund worth reconsidering.
What to look at specifically. Rolling returns over 3 and 5 years compared to the benchmark and to category peers. Whether underperformance is concentrated in a recent period or consistent across years. Whether the fund manager has changed recently, which sometimes explains a strategy shift that affects returns. Expense ratio compared to similar funds.
A fund going through a rough year in an otherwise strong long-term track record is very different from a fund that’s never quite delivered what the category average suggests it should. Treating them the same way is a mistake.
4. Compare Performance with Similar Funds
Context is everything in fund evaluation.
If you hold a mid-cap fund and its down 18 percent over the past year, that sounds bad in isolation. If every mid-cap fund in the category is down 15 to 22 percent, your fund is performing in line with peers, and the issue is the category, not the fund.
Comparing within the same category matters because risk profiles differ significantly across categories. Comparing a mid-cap fund to a large-cap fund tells you nothing useful. Comparing your mid-cap fund to the mid-cap category average tells you whether your specific fund is adding value or subtracting it.
Check the expense ratio, too, while you’re at it. Two funds with similar returns but different expense ratios will diverge over time. The one charging 1.5 percent annually is giving away returns that the one charging 0.6 percent is keeping.
5. Continue SIP Investments During Market Downturns
This is probably the most counterintuitive advice and probably the most valuable one.
When mutual funds crash and statements show losses, the instinct is to stop the SIP. Stop bleeding money. Wait until things look better before putting more in. That instinct is almost precisely backwards.
Markets in correction are markets on sale. Every unit your SIP buys during a downturn is bought at a lower price than the units bought before the fall. When the market recovers, those cheap units appreciate faster and further than units bought at higher prices. The investors who keep SIPs running through corrections capture the full benefit of the eventual recovery. Investors who pause and restart after markets have recovered miss the cheapest units entirely.
Continuing SIPs when markets are falling isn’t bravery, it’s just arithmetic.
6. Diversify Your Investment Portfolio
Sometimes, the reason mutual funds are down harder than expected is concentration risk that wasn’t fully appreciated when the portfolio was built.
If every fund you hold is in the same category, all large-cap equity funds, for instance, then a large-cap bear phase hits every rupee simultaneously. No part of the portfolio is holding up. Diversification across categories, equity plus debt plus hybrid, and across geographies, domestic plus international funds, means different parts of the portfolio respond differently to the same market event.
Debt funds and liquid funds don’t fall when equity markets correct. They might even hold value or deliver positive returns during equity downturns. Having some allocation there provides a psychological buffer during rough equity periods and a practical one too: It’s capital you can redeploy into equity when valuations look attractive without needing to sell anything at a loss.
Losing money in the stock market hurts less when not every rupee you own is in equities.
7. Focus on Long-Term Financial Goals
Step back from the portfolio value for a moment.
Why did you start investing in the first place? Retirement? Children’s education? Financial independence in 15 years? Has any of that changed? Is the underlying goal still valid?
If yes, then the current portfolio value is mostly noise. A retirement goal that’s 12 years away is not affected by what the Nifty does this month. The goal exists in the future. The money has time to recover, grow, and compound. Short-term fluctuations in mutual funds going down simply don’t affect a long-term goal unless you let them by making a short-term decision.
The investors who end up in the best position aren’t the ones who predicted corrections and exited perfectly timed. They’re the ones who defined a plan, stayed with it through bad markets, and let compounding do its job over years rather than months.
How to Identify a Negative Return Mutual Fund?
A negative return mutual fund isn’t automatically a bad fund, and context determines that.
Short-term negative returns in an equity fund during a broad market correction are normal and expected. A fund that’s down 14 percent when its benchmark is down 15 percent has outperformed. The negative number on your statement doesn’t tell the full story.
Patterns worth worrying about:
Consistent underperformance versus the benchmark across multiple years, not just one bad period. If the fund has trailed its benchmark in 4 out of the last 5 years, the fund manager may genuinely not be adding value over passive alternatives.
Negative returns while the category has positive returns. If all mid-cap funds delivered positive returns last year except yours, that’s fund-specific underperformance, not market-related, and it deserves a harder look.
High expense ratio combined with below-average returns. You’re paying more for worse outcomes. That combination rarely corrects itself.
Temporary negative returns from a well-managed fund with a strong track record? Usually fine to hold. Persistent underperformance with no clear explanation? Different story.
When Should You Exit an Underperforming Mutual Fund?
Patience has limits and knowing when those limits are reached matters.
Exit is worth considering when underperformance versus benchmark and category peers has been consistent for three or more years. One bad year can be a blip. Three consecutive years of underperformance are a pattern. Patterns in fund management usually reflect something structural, an investment philosophy that isn’t working in current market conditions, or a fund manager whose skill level doesn’t justify the active management fees.
A change in fund manager is a legitimate reason to reassess. The track record you evaluated when you invested belonged to whoever was running the fund then. New fund managers bring new strategies, new stock selection processes, and new sector biases. That’s a meaningful change even if the fund’s name and SEBI category didn’t change.
Expense ratio creep is another one. If a fund you chose partly for its competitive expense ratio has gradually increased costs while returns haven’t improved, the value proposition has changed.
One caution: Don’t exit simply because the fund is currently negative. Exit because the reasons you invested are no longer valid. Those are different decisions with different outcomes.
What Market Corrections Mean for Mutual Fund Investors?
Market corrections get reported as disasters, and they aren’t.
A correction is typically defined as a fall of 10 percent or more from recent highs. Bear markets are falls of 20 percent or more. Both are normal features of equity markets, not aberrations. The Indian market has experienced multiple corrections and multiple bear phases since the Sensex was first calculated. It’s recovered from every single one.
What corrections do for long-term investors: they compress valuations. The stocks inside your mutual fund become cheaper relative to their earnings. Future returns from a cheaper starting point are better than returns from an expensive starting point. Every major market correction in history has been followed by a recovery that rewarded investors who stayed in or added during the difficult period.
The mutual fund crash headlines during a correction describe a real and temporary fall in portfolio value. They don’t describe a permanent impairment for investors with appropriate horizons. The money loss that feels real during a correction is mostly paper loss. It becomes a real loss only if you sell.
Conclusion
Losing money in mutual funds, or watching the number go from black to red, is one of the more unsettling experiences in personal finance. The feeling is real, even if the loss, at that stage, isn’t permanent.
The seven steps in this article don’t involve any market prediction or timing. None of them requires knowing when the market will recover. They just require staying rational when the numbers are uncomfortable, understanding the difference between a market problem and a fund problem, and keeping a long enough horizon that temporary corrections don’t hijack permanent plans.
Mutual fund market down periods end. They always have. The investors on the right side of that history are the ones who were still invested when markets recovered.
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