So, you opened your investment app this morning, and your mutual fund portfolio is flashing red. Down 20%. Your stomach drops. Your first instinct? Pull everything out and run. Sound familiar?
- What the SIP Study Reveals About Long-Term Investing
- 1. Keep Calm First
- 2. Avoid Redeeming Your Investments Too Quickly
- 3. Compare Performance Within the Same Fund Category
- 4. Explore Other Fund Categories If Needed
- 5. Research the Sector (If You Hold Sector Funds)
- 6. Diversify Your Portfolio
- 7. Stay Updated and Keep Investing
- Conclusion
- FAQs
Here is the thing: you are not alone. Thousands of investors across India are staring at the same screen right now, asking the same question. But before you do anything rash, take a breath. Because if history has taught us anything, it is that panic is almost always the worst investment strategy.
Equity mutual funds are market-linked instruments. When the markets fall, so do your mutual fund returns. That is not a flaw in the system; it is simply how equity investing works. The real question is not whether your mutual funds can lose money (they can), but whether you are making the right decisions when they do.
The ET Wealth-Crisil SIP Study 2026 offers some remarkably reassuring data. According to the study, the longer you stay invested, the lower your chances of losing money. Investors who continued Systematic Investment Plans (SIPs) for 10 years had virtually zero chance of negative returns, based on historical data from 2011 to 2026. That is a powerful number to hold on to the next time your portfolio turns red.
Here is a quick look at what the study reveals about SIP duration and the probability of loss:
What the SIP Study Reveals About Long-Term Investing
| SIP Duration | Probability of Negative Returns |
|---|---|
| 1 Year | 22.7% |
| 2 Years | ~26% (for diversified equity funds) |
| 6 Years | Below 2% |
| 10 Years | Virtually 0% |
And there is more. The probability of SIP returns crossing 10% per annum rises above 80% after just four years of investing. By the 10-year mark, nearly 99% of all SIP periods in the study delivered more than 10% annual returns. Over the long term, returns tend to stabilise between 13% and 15%, offering steady and predictable wealth creation.
Now that you have some context, here are 7 practical things you should do when your mutual fund investments are down.
(Source: ET Wealth-Crisil SIP Study 2026)
1. Keep Calm First
This sounds obvious, but it is genuinely the most important step. Markets are volatile by nature. Short-term fluctuations are normal, and they do not define the long-term performance of a well-chosen mutual fund.
Historically, instances of negative returns in equity mutual funds drop sharply after three to four years of continued holding. Reacting to a short-term fall with a long-term investment decision is rarely a good idea.
2. Avoid Redeeming Your Investments Too Quickly
Yes, your mutual funds are showing a loss. No, that is not a reason to redeem immediately. Redeeming equity mutual funds within one year of investment attracts an exit load of 1% in most cases. Beyond that, Long-Term Capital Gains (LTCG) tax applies if your gains from the investment exceed ₹1.25 lakh in a given financial year at 12.5%.
More importantly, investors who try to time the market by exiting during a fall and re-entering later often end up selling low and buying high. This is the opposite of what you want. SIP investing, through its mechanism of rupee cost averaging, actually works in your favour during market downturns. When prices fall, your SIP buys more units at a lower cost, improving your average purchase price over time.
3. Compare Performance Within the Same Fund Category
If you feel your mutual fund is underperforming, do not compare it to just any fund. Compare it only with funds in the same category. A small-cap fund should be benchmarked against other small-cap funds, not against a large-cap fund.
Check the top-rated funds in your category and see where yours stands. If the gap in performance is marginal, switching funds may not be necessary. Over longer investment periods, mutual funds within the same category tend to deliver broadly similar returns.
4. Explore Other Fund Categories If Needed
Different fund categories carry different levels of risk and reward. If you are invested in small-cap equity mutual funds and find the volatility uncomfortable, it may be worth exploring large-cap equity mutual funds, which are generally more stable.
Conversely, if you are comfortable with higher risk in pursuit of better returns, mid-cap or small-cap funds may serve you better. The ET Wealth-Crisil SIP Study 2026 found that small-cap funds showed the highest probability of generating over 20% returns, even across long SIP durations.
Table 2: Fund Category Comparison at a Glance
| Fund Category | Risk Level | Return Potential | Stability |
|---|---|---|---|
| Large-Cap | Low to Moderate | Moderate | High |
| Mid-Cap | Moderate to High | High | Moderate |
| Small-Cap | High | Very High | Lower |
| Sector Funds | Very High | Variable | Low |
5. Research the Sector (If You Hold Sector Funds)
If your mutual fund investments are concentrated in a particular sector, the fall in your portfolio may be sector-specific rather than market-wide. Sector funds carry higher risk because they invest exclusively within one industry.
Assess the current and future health of the sector you are invested in. If the sector shows strong long-term prospects, staying invested makes sense. If the outlook appears genuinely weak with no signs of recovery, then a planned exit may be worth considering.
6. Diversify Your Portfolio
One of the most effective ways to manage mutual fund losses is to ensure your portfolio is not overly concentrated. If your investments are entirely in equity, consider adding some liquid funds. These can balance out short-term losses while also keeping a portion of your money accessible for near-term needs.
Within equity mutual funds, spread your investments across large-cap, mid-cap, and small-cap categories. Additionally, consider diversifying across asset classes. Gold, for instance, tends to perform well during periods of market stress, making it a reliable hedge against equity volatility.
7. Stay Updated and Keep Investing
The Covid-19 market crash of 2020 offers a compelling case study. Investors with just one year of SIP history saw their portfolio returns fall by over 50% during the panic. Those with nine years of SIP investment history, however, recovered within just two days. One-year SIP investors took approximately 122 days to return to positive territory.
The lesson is clear: time in the market matters far more than timing the market. Stay informed about the macroeconomic environment, review your portfolio periodically, and continue your SIPs unless there is a fundamental reason not to.
Conclusion
Can mutual funds lose money?
Yes.
Should a 20% decline automatically trigger panic?
Probably not.
Market corrections are an unavoidable part of equity investing. However, history shows that investors who remain disciplined, continue their SIPs, avoid emotional decisions, and stay focused on long-term goals are often better positioned to benefit when markets recover.
The ET Wealth-Crisil SIP Study 2026 reinforces this lesson. The longer investors stay invested, the lower their chances of losing money and the greater their chances of achieving consistent returns.
When markets fall, successful investors focus less on short-term noise and more on long-term wealth creation. Often, the best response to a temporary decline is not dramatic action but disciplined patience.
Stay calm, stay invested, and let time do the heavy lifting.
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