Perccent

Markets don’t move in straight lines. Sometimes, your app shows green arrows; other weeks, it looks like a traffic jam of red. When your portfolio drops, it’s natural to ask why mutual funds are going down and whether you should do anything about it.

This guide keeps things simple and practical —so you can act with clarity, not panic.

When and why values drop

Mutual funds reflect the value of what they hold—equities, debt, gold, or a mix. So, when prices of underlying securities fall, mutual fund down days appear in your tracker. Equity funds slip when stock markets correct. Debt funds fall when interest rates rise or credit risk flares up. Even hybrids show a dip because both parts can move at once. That’s the backdrop behind headlines like mutual fund falling or mutual fund down today.

Small corrections are part of investing. They clean up excesses, reset expectations, and create better entry points.

The tough part is emotional: your money is involved. That’s why this article moves beyond “markets are volatile” and shows you exactly what to do next.

The core idea

A mutual fund’s NAV is the weighted average value of the securities it owns, marked to market every day. If stocks in the portfolio drop 2%, an equity fund’s NAV likely falls too. If bond yields rise, existing bonds are worth a bit less, so some debt funds dip as well.

That’s the simple mechanism behind why mutual funds are going down today versus yesterday.

This is also why two funds behave differently on the same day. A large-cap index fund tied to the Nifty 50 won’t mirror a small-cap fund. A short-duration debt fund won’t move like a long-duration gilt fund.

Understanding what you own helps you understand why it moves.

What’s driving this?

Before acting, diagnose the “why.”

Here are the usual suspects behind why mutual funds are going down…

1) Equity Market Corrections

Corrections follow strong rallies or when earnings don’t meet hype. If mid and small caps ran up too fast, a cool-off brings valuations closer to reality.

Example: After a year of fast gains, small-cap valuations stretch. An 8–12% correction clip froth. Your small-cap fund shows red, while your large-cap index holds up better.

2) Global Cues and Risk Sentiment

Oil spikes, Fed rate signals, geopolitics, or a global risk-off day can send foreign investors (FPIs) to sell. This selling pressure affects frontline stocks and, in turn, broad equity funds.

Example: Crude prices jump sharply—FPI selling increases, large-caps dip first, and your multi-cap fund softens.

3) Domestic Interest Rates (Debt Funds)

When interest rates rise, existing bonds with lower interest rates look less attractive, so their prices fall. The longer the bond’s maturity, the bigger the impact on its price—and your NAV.

Example: If the RBI keeps rates elevated, long-duration and gilt funds can see more day-to-day NAV swings than ultra-short or liquid funds.

4) Credit Events (Selective Debt Categories)

If a bond issuer’s quality is questioned, the market demands a higher yield, depressing the price. Funds with exposure to such issuers can fall temporarily while markets reprice risk.

Example: A downgrade in a mid-tier issuer—credit-risk funds with exposure feel the immediate impact; high-quality short-duration funds barely notice.

5) Asset Mix in Hybrid Funds

Aggressive hybrids feel equity corrections more; conservative hybrids feel rate moves more.

Example: In fear of rising interest rates, conservative hybrids soften a bit even if equities are stable.

It’s the math behind NAVs. The goal is to respond thoughtfully, not react emotionally.

What should you do when the market is down?

When you see mutual fund down today, the reflex is to “do something.”

Here’s a calmer, step-by-step way to decide.

Step 1: Revisit Your Goal and Timeline

Match each fund to a goal (school fees, home purchase, buffer fund). If your goal is 7–10 years away, a 5–10% equity correction is noise. If the goal is in 12 months, your equity exposure was likely too high; correct the asset mix rather than panic-sell.

Step 2: Check the Fund Type, Not Just the Line Color

Is the fall in line with category behavior? Large-cap funds dip less than small-caps in corrections. Short-duration debt funds dip less than gilts in rate spikes. If your fund is behaving as its category typically does, it’s not “broken.”

Step 3: Decide: Hold, Buy, or Exit (with Reason)

• Hold if your time horizon is intact and the fund is doing what it should.
  
• Buy (via SIP/top-up) if your plan allows. Declines are the friend of accumulators—your SIP buys more units cheaper.
  
• Exit/Reduce only if the fund no longer fits your goal, the category is wrong for your risk profile, or the fund’s process has deteriorated (e.g., persistent strategy drift, out-of-category bets that don’t match the mandate).

Step 4: Don’t Sell Just Because It fell

Selling because it fell converts a paper dip into a real loss. Selling for a reason (goal, risk fit, mandate breach) is sensible. Otherwise, stay the course and let your SIP work.

Should you ever sell during a decline?

Sometimes, yes—but for the right reasons:

• Imminent Goal: Money needed within 6–12 months shouldn’t ride equity volatility. Move planned redemptions for near-term goals into liquid/ultra-short-term funds in a phased way.
  
• Wrong Vehicle: If you used a small-cap fund for a 2-year goal, shift to short-duration debt or roll down funds.
  
• Fund Process Concerns: If a fund keeps straying from its mandate or takes undue risks, switch within the same category to a steadier peer.

If none of the above applies, stick to your plan.

“Can I lose money in Mutual Funds?”—And what to do if it happens

Yes, in the short term, you can. Equity NAVs swing. Even debt funds can dip when rates jump. But losses aren’t a verdict on mutual funds—they’re a reminder that fit and timeframe matter.

Practical Strategies to Reduce the Chance of Losses

1. Right Asset Mix from Day One
   Start with appropriate equity, debt, and (optionally) gold. For goals 7–10 years away, equity can be the engine; for 1–3 years, debt should dominate.
   
2. SIP + STP Discipline
   SIPs average your cost across cycles. If you hold a LumpSum but want to spread entry, use an STP from a liquid fund into an equity fund over a few months.
   
3. Rebalance Annually
   If equity grows from 60% to 70% after a rally, trim back to 60%. In declines, if equity falls to 50%, add back to 60%. Rebalancing forces you to “sell high, buy low” without guessing tops and bottoms.
   
4. Shift gradually as goals get closer
   Five years from a big goal, gradually shift risk down (more short-term debt, less volatile equity). This avoids being forced to sell after a fall.
   
5. Category Hygiene
   Hold broad, liquid categories for core allocations (large-cap, flexi-cap, short-duration debt). Keep niche or high-risk categories small and intentional.

Quick example: You invest ₹10,000 monthly in a diversified equity fund for 10 years. In year 3, the market corrects 15%. Your SIP buys more units at lower NAVs. By year 10, the units accumulated during the down year meaningfully lift your long-term return.

The decline felt bad in the moment; it helped your outcome later.

Managing your portfolio in a down market

1) Rebalance, Don’t Rebuild
If your plan was sensible last month, it’s still sensible. Rebalance to target weights rather than re-inventing your portfolio. Small, rule-based moves beat big emotional swings.

2) Keep SIPs On
When you wonder will mutual funds will crash, remember: if you’re accumulating, lower NAVs are a feature, not a bug. Your SIP is quietly buying more units.

3) Tax-Smart Maintenance
If you must switch, consider holding periods and exit loads. Use losses to offset gains (tax-loss harvesting) where appropriate. Keep documentation clean.

4) Liquidity Bucket for Calm
Maintain 3–6 months of expenses in liquid/ultra-short-term funds. Knowing you can handle life’s bumps makes staying invested easier.

5) Simple Monitoring Cadence
Quarterly check on goals and categories is enough for most investors. Daily app refreshes increase anxiety without improving decisions.

Why declines can help long-term investors

• Better Entry Prices: SIPs gather more units at lower NAVs, lifting long-term internal rates of return.
  
• Quality at Reasonable Prices: Corrections often bring strong businesses and steady bond papers back to attractive valuations/yields.
  
• Habit Formation: Declines test your process. If you get through one cycle with discipline—asset mix, SIP, rebalance—you’re set up for the next decade.

Mistakes to avoid

Panic-Selling Winners: Offloading your best funds first (because they still show gains) can hollow out the portfolio’s quality.

Chasing Yesterday’s Star: Jumping to last month’s top performer after a fall is how investors end up buying high and selling low.

Category Creep: In search of quick recovery, people add complex or illiquid categories they don’t fully understand. Keep the core simple.
All-or-Nothing Moves: Going 100% cash or 100% equity based on a headline usually backfires. Gradual, rules-based changes work better.

Ignoring Costs and Loads: For very short holding periods, exit loads and short-term capital gains tax can dent returns more than the dip itself. Always check before you act.

Why are mutual funds going down in India?

You’ll see headlines like why mutual fund market is down or why mutual funds are going down in India. The near-term reasons are often mechanical, not existential:

• Valuation Normalisation: After strong phases, equities cool as earnings catch up. That’s healthy.
  
• Rate Cycle Effects: When the rate environment is firm, longer-duration debt and rate-sensitive equities adjust first.
  
• FPI Flows and Global Risk: India is part of the global grid. Risk-off waves can temporarily pressure frontline stocks despite sound domestic fundamentals.
  
• Category Composition: If many investors tilted to small-caps or long-duration debt, the broader “average portfolio” feels sharper swings when those pockets correct.

Now, the favourable part for long-term mutual fund investors:

• Broad Market Participation: Indian mutual funds give everyday investors exposure to the growth of listed businesses and quality bonds through a regulated, diversified vehicle.
  
• SIP Culture: Regular investing smooths timing risk. Declines are when SIPs quietly do their best work.
  
• Regulatory Framework: The MF ecosystem in India has strong transparency and suitability norms (KYC, risk-o-meters, categorisation). That doesn’t eliminate risk; it channels it better than DIY stock punts or opaque alternatives.

So while why mutual funds are down today may have perfectly reasonable answers, the long-term case—discipline, diversification, and participation in India’s growth, remains intact.

Quick pointers

• “Mutual fund falling = I picked wrong?” Not necessarily. Check category behaviour and your goal timeline first.
  
• “Should I pause SIPs?” Usually no. SIPs are built for downturns.
  
• “Switch to FD?” For money needed within 12 months, yes—your asset mix should reflect that. For long-term goals, an all-debt shift risks missing future compounding.
  
• “Will mutual funds crash?” Markets can face deep drawdowns; no one can time them consistently. Your defense is a sensible mix, SIP discipline and periodic rebalancing.

Conclusion

Understanding why mutual funds are going down—equity valuations settling, rate cycles shifting, global flows turning—helps you respond with a plan: stick to goals, keep SIPs on, rebalance on schedule, and match categories to timelines.

That mix is how investors turn market swings into long-term progress.

If you want a simpler way to stay disciplined, try a goal- and basket-based approach. Perccent is designed to help you pick the right mix for each goal, keep SIPs steady, and review without stress—especially useful if you prefer clear choices and fewer moving parts.

FAQs

1) Why are my equity mutual funds down when the index isn’t falling much?

Category mix matters. Small-caps can correct harder even if large-caps are flat. Your fund’s allocation and stock selection drive day-to-day differences. Look at the category benchmark, not only the headline index.

2) My debt fund is down—aren’t debt funds supposed to be stable?

They’re more stable than equities, but not risk-free. When interest rates rise, existing bonds lose some value. Shorter-duration and high-quality funds usually move less than long-duration or credit-risk funds.

3) Should I stop or reduce SIPs during down markets?

Down markets are when SIPs add the most value by buying more units at lower NAVs. Stopping SIPs removes that benefit and can delay reaching your goals.

4) How do I know if a fund is underperforming versus just facing a market dip?

Compare rolling returns to the fund’s category benchmark over meaningful periods (say, 3–5 years). A short blip aligned with the category isn’t a red flag; persistent lag across cycles can be.

5) Is it okay to shift from a falling fund to a “top performer” right now?

Switching purely based on recent returns is risky. If you decide to switch, keep the same category, choose a consistent process (index or steady active), and consider taxes/exit loads.

6) What’s a simple way to manage risk if I don’t want to think about it every week?

Automate what you can: SIPs for accumulation, an annual rebalance rule, and a glide path as goals near. Keep an emergency bucket in liquid/ultra-short-term funds. Simplicity keeps you invested.

Disclaimer:
Mutual fund investments are subject to market risks. Please read all scheme-related documents carefully before investing. The examples and scenarios shared in this article are for educational purposes only and are intended to help parents and individuals make informed decisions. They do not constitute financial advice or a recommendation. For personalised investment planning — especially when investing for your child’s future — please consult a certified financial advisor or distributor.