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Over the years, Mutual Funds have earned the reputation of anideal investment that comes with immense benefits and always delivers profits. But, this may seem incorrect if you see any Mutual Fund advertisement. Almost every Mutual Fund ad marks its end with “Mutual Fund investments are subject to market risks. Please read the offer document carefully before investing.” Through this line, Mutual Fund companies inform you that your profits in these investments are conditional. Hence, there may be losses too. That may make you question the ‘always profitable’ belief of Mutual Funds that you may be carrying all along. What if you lose money in Mutual Funds too? What should you do then?

This article will cover all your fears around the losses that Mutual Funds may make. It will also guide you with what you can do to control your losses and become profitable again. So, read on!

Understanding how Mutual Funds Work

Before we get to the profit-loss tangent of Mutual Funds, let’s get your basics right. A Mutual Fund is an investment vehicle managed by a Fund manager who invests the money accumulated by selling the Mutual Fund units into multiple asset categories. These assets categories include equities, commodities, bonds, currencies, etc. The Fund Manager tries to leverage the market situations and trends to reap profits from these investments and achieve the fund objective. But, profitability in such market-linked investments depends on several factors – Market Volatility, Experience and Judgment of the Fund Manager, Economic Growth, Geopolitical Factors, Stock Performances, etc. If everything works well for the investment, there may be a profit or a loss. If there is a profit from these investments, you receive it in proportion to your unit holding. Likewise, if the investments suffer a loss, all the unitholders will bear losses in proportion to their unit holding.

Steps to follow when your Mutual Fund Investment run Losses

Let’s assume you lose money in a Mutual Fund investment. It does not mean you should panic. Instead, follow these steps below and try to stray your investment towards profitability,

Stay Calm

The universal truth is that equity markets are volatile in the short run. You will experience your share of highs and lows here. And it will inevitably affect your returns. In this situation, you must keep your calm. Don’t let panic lead you into hasty, incorrect decisions. Mutual Fund investments require a great deal of patience on your path. Before venturing into this investment, you must have set a financial goal and decided on an investment tenure to achieve that goal. Adhere to that tenure. Remember, Mutual Fund investments tend to perform relatively well in the long run.

Know more about your Fund Scheme

It is always prudent to know all the specifications of a Mutual Fund scheme, such as its Asset Allocation Information, Fund Manager, Costs, etc., before you bet your money on it. In case you have missed out on doing that earlier, do it now. Understand how your fund works. You need to know about the sectors where your money is invested. You must track the performance of your mutual fund regularly. That will help you to decide for how long you must hold your investment. Liquidating your investment at the wrong time may culminate in losses. Furthermore, you may also miss out on grabbing profitable opportunities that lie shortly. Hence, study your fund’s procedure and return pattern at regular intervals.

Diversify your Investment

The negative returns that your Mutual Fund is experiencing may be a one-off incident or a regular occurrence. In either case, an excellent strategy to hedge such risks is to go for diversification. Look for Mutual Funds focussing on asset categories or sectors or stocks other than what is present in your existing fund portfolio. You can easily invest in Mutual Funds online. It is a quick, convenient, and straightforward exercise through a registered broker like ICICI Direct. Click here to invest in Mutual Funds with ICICI Direct now. Remember, multiple Mutual Fund investmentswill not let your overall returns dip. Moreover, you will reap relatively higher returns and overcome the losses you suffered in the past when the markets are kind in the long run.

Avoid the Temptation to Redeem your Units

Once the downward trend of your returns starts, it is natural to feel that you may suffer further losses in your investment going forward. Hence you may be tempted to redeem your units and control your losses. But you must know that one of the primary reasons for your fund’s negative performance may be because the market is bearish. And if you redeem your units in such a market condition, you would commit the mistake of making your notional losses real. So, resist the temptation and focus on the goal of creating wealth in the long term instead.

Compare the Performance of your Fund

Comparison is a great way to figure if the loss you are experiencing is only subject to investors in your particular fund scheme or across other funds too.An excellent way to start here is by talking to your fellow investors about their fund’s performance. Have they been on the lower end of returns too? Since how long has the downward trend been? Another simple way is the online research. Check the performance of funds in your category as well as across categories. It will give you a complete pictureof the market temperature. That in turn will help you to gauge the quality of your fund versus the rest. You will know if exiting the fund is the right move after this step.


The correct assessment of your goals, your investment tenure, and the fund’s objectives are essential for picking the right fund. If this exercise is done correctly, you must keep your cool even if the returns are not as expected in the short run. The returns tend to improve and pick pace in the long run if the fund you picked is the right one.

Also, do not forget – the best time to buy is when prices are low. Hence, if the reason for your negative returns is falling prices of stocks, use it as an opportunity to invest more. Disclaimer – ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. – ICICI Venture House, AppasahebMarathe Marg, Prabhadevi, Mumbai – 400 025, India, Tel No : 022 – 6807 7100. AMFI Regn. No.: ARN-0845. We are distributors for Mutual funds. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.Please note, Mutual Fund related services are not Exchange traded products and I-Sec is just acting as distributor to solicit these products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon.