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How to Track & Evaluate Mutual Fund Performance
In summary
Mutual funds can lose value because the securities in their portfolios can fall in value. A temporary fall does not automatically mean you need to sell. The right response depends on why the loss occurred, your investment goal, and whether the fund still suits your portfolio.
- Check why the loss happened.
- Review the fund and its portfolio.
- Compare performance with its category.
- Avoid making decisions based on fear.
Check whether your goal has changed.
For example, a Rs. 1 lakh investment that falls by 15% is worth Rs. 85,000. The loss is real if you redeem at that value, but the fund's future performance cannot be known from the fall alone.
Before making a change, review the fund's objective, risk level, performance, portfolio, costs, and your investment horizon.
Can you lose money in mutual funds?
Yes, you can lose money in mutual funds because their values are market-linked. Diversification can reduce the impact of one poor investment, but it cannot remove market risk.
A fund’s value is expressed through its Net Asset Value, or NAV, per unit. NAV is calculated daily after accounting for the fund’s assets, liabilities, and expenses.
The basic formula is:
NAV per unit = (Value of assets − liabilities) ÷ outstanding units
Suppose a fund has assets worth Rs. 50 lakh, liabilities of Rs. 5 lakh, and 1 lakh outstanding units. Its NAV is:
(Rs. 50 lakh − Rs. 5 lakh) ÷ 1 lakh = Rs. 45
If you invest Rs. 90,000 at an NAV of Rs. 45, you receive 2,000 units. If the NAV falls to Rs. 35, your holdings become worth Rs. 70,000.
The Rs. 20,000 fall is an unrealised loss while you continue holding the units. It becomes a realised capital loss if you redeem them at that value.
Why do mutual fund losses happen?
Mutual fund losses can result from market conditions, portfolio risks, costs, or a mismatch between the scheme and your investment horizon.
The common causes include:
| Cause | How it affects your investment |
|---|---|
| Market decline | Falling share or bond prices reduce NAV |
| Interest-rate movement | Rising rates can reduce existing bond prices |
| Credit event | A downgrade or default can reduce debt-security values |
| Concentration | Heavy exposure to one sector increases risk |
| Strategy performance | The fund’s investment approach may underperform |
| Costs | Scheme expenses reduce the returns reflected in NAV |
In actively managed schemes, decisions made by fund managers can affect performance. However, underperformance does not automatically prove poor management. The fund’s strategy may also remain temporarily out of favour.
Are mutual funds safe?
Mutual funds carry different levels of risk rather than one common safety level. The risk profile of a mutual fund depends on its assets, duration, credit quality, concentration, and investment strategy.
The Securities and Exchange Board of India (SEBI) Riskometer uses six categories:
- Low
- Low to Moderate
- Moderate
- Moderately High
- High
- Very High
A government-securities fund can have low credit risk but remain sensitive to interest-rate changes. An equity fund can experience substantial short-term falls even when it holds established companies.
Mutual fund returns are not guaranteed by SEBI, the Association of Mutual Funds in India, an asset management company, or the Bajaj Broking website.
What should you do when a mutual fund loses money?
You should first identify whether the loss comes from a broad market decline, a category-wide problem, or a scheme-specific issue. Avoid making a decision based only on the colour or percentage displayed in your portfolio.
Check whether the loss is realised
A fall in current value is not a realised loss until you redeem the units. Compare the current NAV with the purchase NAV for each investment.
For an SIP, every instalment purchases units at a different NAV. Therefore, one simple purchase price may not represent your complete investment cost.
Identify the reason for the fall
Check whether the scheme’s benchmark and category peers also declined. A broad equity-market fall can affect most equity funds, while a credit event may affect only selected debt schemes.
Also review whether the scheme changed its strategy, portfolio concentration, or fund manager. Read the latest factsheet before deciding.
Compare matching funds and periods
Compare fund performance with the stated benchmark and similar schemes. Use matching categories, plans, options, and periods.
Do not compare a small-cap fund with a large-cap fund or a short-duration debt fund with a long-duration fund. Their objectives and risks differ.
Recheck your goal and investment horizon
A temporary decline matters differently for a goal due in six months and one due in ten years. If your goal is approaching, reducing portfolio risk may deserve consideration.
If your time horizon and risk capacity remain unchanged, short-term market movement alone may not require action.
Continue an SIP only after review
SIP investments buy more units when NAV is lower and fewer units when NAV is higher. This is called rupee-cost averaging.
Rupee-cost averaging does not prevent losses or guarantee profit. Continue an SIP only when the scheme, asset allocation, goal, and risk level remain suitable.
Exit or rebalance when justified
Consider corrective action when the scheme repeatedly underperforms its benchmark and category across comparable periods. A major strategy change, unsuitable risk level, or approaching goal may also justify action.
Before redeeming or switching, check exit load and tax implications. A switch between schemes is treated as a redemption and can create capital gains or losses.
How can you reduce mutual fund risk?
You cannot remove mutual fund risk, but you can manage it through suitable fund selection, diversification, and regular review.
Useful risk-management practices include:
- Match The Time Horizon: Avoid using volatile funds for short-term financial needs.
- Check The Riskometer: Select a risk level that matches your ability to handle losses.
- Diversify The Portfolio: Diversify your portfolio across suitable asset classes and categories.
- Review Scheme Costs: Compare expense ratios and exit-load conditions before investing.
- Maintain Emergency Savings: Keep near-term emergency money outside volatile investments.
- Review Periodically: Check goals, allocation, and performance every 6 to 12 months.
- Avoid Performance Chasing: Recent high returns do not predict future results.
Debt funds can provide a different risk profile from equity funds. However, they still carry interest-rate, credit, liquidity, and market risks.
Conclusion
Mutual fund losses can result from market declines, interest-rate movements, credit events, concentration, costs, or scheme-specific performance. A falling NAV does not always require immediate redemption, but ignoring persistent problems can affect your financial goal.
Review the cause, benchmark comparison, risk level, and investment horizon before acting. You can explore mutual fund schemes and compare the mutual funds available through the Bajaj Broking website.
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Frequently Asked Questions
SIP losses and redemption decisions
Mutual fund losses and investment safety
What to do if my SIP investments are incurring losses?
Compare the scheme with its benchmark and peers. Continue the SIP only if its risk, strategy, and investment horizon still match your goal.
Should I redeem my mutual fund investments if they are making losses?
Not automatically. Review the cause, performance consistency, goal, risk level, exit load, and tax impact before redeeming your units.
Can my mutual fund investment value go to zero?
A complete loss is uncommon in a diversified fund but remains possible. Concentrated, sector-focused, or credit-risk portfolios can suffer substantial losses.
Do mutual funds give negative returns?
Yes. Mutual funds can deliver negative returns when falling prices, interest-rate changes, credit events, or expenses reduce the scheme’s NAV.
How can portfolio overlap contribute to losses during a market correction?
Portfolio overlap concentrates money in the same securities across funds. During a correction, these shared holdings may fall together, increasing your overall portfolio loss.
Disclaimer
Bajaj Finance Limited ("BFL") is registered with the Association of Mutual Funds in India ("AMFI") as a distributor of third party Mutual Funds (shortly referred as 'Mutual Funds) with ARN No. 90319
BFL does NOT:
(i) provide investment advisory services in any manner or form.
(ii) carry customized/personalized suitability assessment.
(iii) carry independent research or analysis, including on any Mutual Fund schemes or other investments; and provide any guarantee of return on investment.
In addition to displaying the Mutual fund products of Asset Management Companies, some general information is sourced from third parties, is also displayed on As-is basis, which should NOT be construed as any solicitation or attempt to effect transactions in securities or the rendering any investment advice. Mutual Funds are subject to market risks, including loss of principal amount and Investor should read all Scheme/Offer related documents carefully. The NAV of units issued under the Schemes of mutual funds can go up or down depending on the factors and forces affecting capital markets and may also be affected by changes in the general level of interest rates. The NAV of the units issued under the scheme may be affected, inter-alia by changes in the interest rates, trading volumes, settlement periods, transfer procedures and performance of individual securities forming part of the Mutual Fund. The NAV will inter-alia be exposed to Price/Interest Rate Risk and Credit Risk. Past performance of any scheme of the Mutual fund do not indicate the future performance of the Schemes of the Mutual Fund. BFL shall not be responsible or liable for any loss or shortfall incurred by the investors. There may be other/better alternatives to the investment avenues displayed by BFL. Hence, the final investment decision shall at all times exclusively remain with the investor alone and BFL shall not be liable or responsible for any consequences thereof.
Investment by a person residing outside the territorial jurisdiction of India is not acceptable nor permitted.
Disclaimer on Risk-O-Meter:
Investors are advised before investing to evaluate a scheme not only on the basis of the Product labeling (including the Riskometer) but also on other quantitative and qualitative factors such as performance, portfolio, fund managers, asset manager, etc, and shall also consult their Professional advisors, if they are unsure about the suitability of the scheme before investing.
Disclosure: Bajaj Finance Limited (BFL) is a distributor of Mutual Funds with ARN - 90319 and distributes mutual funds of Bajaj Finserv Asset Management Limited (BFSAMC). BFL receives commission towards distribution of mutual fund products. BFSAMC is a group company of BFL, carrying business on arm’s length basis without any conflict of interest and in accordance with the prevailing law / regulation.
Disclaimer
Bajaj Finance Limited ("BFL") is an NBFC offering loans, deposits and third-party wealth management products.
The information BFL contained in this article is for general informational purposes only and does not constitute any financial advice. The content herein has been prepared by BFL on the basis of publicly available information, internal sources and other third-party sources believed to be reliable. However, BFL cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed.
This information should not be relied upon as the sole basis for any investment decisions. Hence, User is advised to independently exercise diligence by verifying complete information, including by consulting independent financial experts, if any, and the investor shall be the sole owner of the decision taken, if any, about suitability of the same.
Disclaimer
Mutual Fund SIP calculator may provide potential investors an approximate estimate on the maturity amount of the monthly SIP, purely based on mathematical calculation of the projected annual return rate selected by investor. However, such calculation does not factor the actual performance by the Asset Management Company (AMC) and should not be treated as any advice or assurance about the actual return of investment. Mutual Funds do not have a fixed rate of return and it is not possible to predict the rate of return. Please note that the SIP calculator are for illustrations only and do not represent actual returns which may vary depending on various factors including but not limited to actual performance, expense ratio, taxation, exit load (if any), etc.