When mutual funds investors seek higher returns, they invest in equity mutual fund. These are mutual fund that invest in the stock markets. Since they are market-linked, these funds get affected when the market goes down and this is why your mutual funds are going down in value too.
So, here are some of the things to Do When Losing Money in Mutual Funds
This is the absolute first step to successful investing. The stock markets usually perform well over a long period. In the short term, volatility causes the price to go up and down. While you can lose money in mutual funds due to short term market disturbances, if you look at the long term, instances of negative returns drastically reduce after 3-4 years of holding.
Avoid redeeming in haste
Can you lose money in mutual fund in falling markets? Yes. But does this mean you should redeem your investments? No. Think twice before redeeming your money the moment you see the markets perform poorly. Equity mutual funds that are redeemed a year before investing attract an exit load of 1% in most cases. Even after that, LTCG tax may be applicable if your gains from that investment are above Rs 1 lakh for any given financial year.
Compare performance with other funds in the same category
You may feel the mutual fund you have invested in is not performing very well. This may or may not be a time when the markets are doing well. A good strategy at this point is to check your mutual fund performance with similar mutual funds. Compare performance with other funds from different categories, certain mutual fund categories are more volatile. This means, while they might offer great returns, they can also offer higher risk.
If you feel you are not up for the risk, you should look at the performance of mutual funds from other categories.
Research the sector
Another reason why your mutual fund are falling could be because your investments are sector focused. This point is relevant to you only if you have invested in a sector fund. Sector funds invest only in a specific sector or industry. Even when the markets, in general, are doing well, certain sectors can suffer. If a certain sector does underperform, you must research the sector carefully. Sector funds are considered the riskiest for a reason – they are even harder to predict when compared to other equity mutual funds. So if you have invested in a sector fund and are losing money, pay attention to the health of that industry and its prospects.
If you think the industry has a good future, continue to remain invested. If on the other hand, you think the industry isn’t doing well, you should plan to redeem your money.