Mutual Funds in Loss in 2026? Should You Continue SIPs, Switch Funds or Rebalance Your Portfolio?

Seeing a mutual fund portfolio in red creates an immediate urge to do something. Stop the SIP. Switch to another fund. Move money to a safer category. Or wait until the portfolio returns to profit before touching anything.

That reaction is understandable in 2026. In FY2025-26, 731 mutual fund schemes delivered negative annual returns compared with 243 in the previous year, and several diversified equity funds were still showing double-digit negative YTD returns in October 2026. 

But Mutual Funds in Loss do not all require the same response.

A loss can come from a weak market, a weak fund, a portfolio that has drifted away from its intended allocation, or simply a financial goal whose timeline has changed.

Before deciding what to do, first identify where the problem actually sits.

One Red Number Can Represent Three Different Problems

Suppose your mutual fund statement shows -8%. That number alone cannot tell you whether to continue your SIP, switch the fund or rebalance the portfolio.

Consider these three situations:

1) The market is the problem:

Your fund is negative, but its benchmark and most comparable schemes are also going through a difficult period.

The fund may be in loss without being an underperformer.

2) The fund is the problem:

The broader category has recovered or performed reasonably, but your fund continues to lag relevant benchmarks and peers across meaningful periods.

That requires a Mutual Fund Performance Review.

3) The portfolio is the problem:

Individual funds may be functioning normally, but market movements have changed your overall allocation. You may now have much more or much less exposure to equity, mid caps, small caps or another segment than intended.

That is a Mutual Fund Portfolio Rebalancing question.

The action should follow the diagnosis.

Being in Loss Is Not the Same as Underperforming

This is probably the most important distinction when reviewing mutual funds in 2026.

Imagine two hypothetical funds:

Fund A is showing an absolute loss, but it performed better than its benchmark over that period. Fund B made money, but materially lagged its benchmark.

So which one deserves more investigation?

Potentially Fund B.

This is why Mutual Fund Losses and underperformance should not be used interchangeably. One measures whether your investment value has declined over a particular period; the other asks whether the fund has performed reasonably relative to an appropriate comparison.

The timeframe also matters. In October 2026, several diversified equity schemes were negative by more than 10% YTD, while the picture looked very different over three-year periods. 

A one-year red number therefore needs context before it becomes a decision.

When Continuing the SIP May Make Sense

Continuing an SIP is not automatically right merely because markets have fallen. But stopping one only because the portfolio has turned red may also be the wrong diagnosis.

A SIP Investment Strategy can still remain relevant when:

• The underlying financial goal has not changed.
• The remaining investment horizon is still sufficiently long for the chosen category.
• The fund continues to perform its intended role.
• The investor’s cash flow still comfortably supports the contribution.
• The portfolio has not become excessively concentrated in that category.
• The fund’s weakness broadly reflects the market or category rather than a clear scheme-specific issue.

During falling markets, the same SIP amount purchases more units when NAVs are lower. That mathematical feature does not guarantee higher future returns or guarantee that a loss will recover, but it explains why stopping simply because NAV has fallen changes the accumulation process.

There is an equally important distinction: Continuing the SIP does not mean you must ignore the fund.

You can continue investing while still conducting a proper performance review.

When a Fund in Loss Deserves a Deeper Review

Suppose the whole category fell sharply. Your fund falling too is not, by itself, evidence that the fund has failed.

Now suppose the category recovered, comparable funds performed materially better and your fund continued lagging through different market conditions. That is a different situation.

A Mutual Fund Performance Review should then examine more than one return number.

Compare the right things

Review the fund against:

• Its appropriate benchmark
• Relevant category peers
• Multiple meaningful periods
• Rolling-return behaviour where useful
• The level of risk being taken

Look for structural changes

Ask whether anything important changed inside the fund:

• Fund manager
• Investment process
• Portfolio construction
• Concentration
• Investment mandate
• Style behaviour

Current assessments of underperforming funds similarly emphasise distinguishing a temporary weak phase from persistent relative underperformance and looking beyond one recent return period. 

The useful question is therefore not: “Has this fund given me a loss?”

It is: “Is this fund still behaving reasonably for the job I selected it to perform?”

When Mutual Fund Switching May Need to Be Evaluated

Mutual Fund Switching becomes relevant only after you can explain why the existing fund may no longer deserve its place in the portfolio.

Reasons worth investigating can include persistent relative underperformance, a material change in the fund’s characteristics, a change in your goal or horizon, unnecessary duplication with other holdings or a better-defined portfolio role being required.

But switching because another fund currently appears at the top of a return table creates another problem.

You may sell yesterday’s laggard and buy yesterday’s winner. By the time leadership changes, the cycle can repeat.

There is also a practical point investors sometimes miss: A mutual fund switch is not simply an internal movement of money.

A switch-out is processed as a redemption and the switch-in as a new purchase. Applicable exit load may therefore need to be considered, and switching can also have capital-gains tax consequences depending on the type of fund, holding period and individual circumstances. 

So before switching, ask:

1. What exactly is wrong with the existing fund?
2. What does the replacement solve?
3. What transaction consequences does the change create?

If the second question does not have a clear answer, the switch may simply be performance chasing.

When Rebalancing Is the Actual Answer

Sometimes none of your mutual funds is individually “bad”. The problem is the mix.

Suppose your intended portfolio originally looked like: 70% equity + 30% debt

After a major market movement it becomes: 61% equity + 39% debt

If your goals, time horizon and risk profile are unchanged, the issue is not necessarily which equity fund should be switched.

The portfolio has moved away from its intended allocation.

That is what Mutual Fund Portfolio Rebalancing is designed to address.

Interestingly, during a market fall, rebalancing can sometimes mean adding towards an underweight allocation rather than selling the investment that has fallen.

The adjustment also does not always have to happen through redemption. Depending on circumstances, future contributions can sometimes be directed towards an underweight allocation so the portfolio gradually moves closer to its intended structure without unnecessary transactions.

The core principle is: Rebalancing responds to allocation drift, not to the colour of today’s return number.

Current portfolio-review guidance similarly treats rebalancing as a response to meaningful asset-allocation drift and changed financial circumstances rather than a reaction to market headlines.

What If Your Goal Is Now Much Closer?

This is the situation where simply saying “stay invested for the long term” can become dangerous.

Imagine someone started an equity-oriented SIP twelve years before a child’s higher-education requirement.Today, the portfolio is down. But more importantly, the first education payment is now only eighteen months away.

The question is no longer: “Will markets recover?”

It is: “How much of this money can still reasonably remain exposed to market uncertainty when I need it soon?”

A shortening investment horizon can justify reviewing the portfolio even if the fund itself has done nothing wrong.

The opposite is also true.

Someone whose retirement goal remains twenty years away should not automatically make the same decision as someone needing the money next year merely because both portfolios currently show a loss.

The deadline matters more than the colour.

Continue, Switch or Rebalance? Use This Decision Map

A useful way to organise the decision is to separate what has actually changed.

This prevents one return number from answering a question it was never designed to answer.

A Simple 10-Minute Review Before You Act

When your portfolio is in loss, open your statement and answer these six questions before making a transaction:

1. Is the loss broad or fund-specific?
   Check the relevant benchmark and comparable category.
2. What period am I judging?
   YTD, one year, three years and your own SIP XIRR can tell different stories.
3. Has my goal changed?
   A fund selected for a ten-year horizon may need different consideration when only two years remain.
4. Is my portfolio allocation still where I intended it to be?
   The problem may be allocation drift rather than the fund itself.
5. Has anything material changed inside the fund?
   Look beyond NAV to the mandate, portfolio, management and role.
6. What problem will my proposed action solve?
   If you cannot clearly explain why stopping, switching or rebalancing improves the situation, do not let the red number make the decision for you.

That final question is often the most useful one.

What Should You Do When Your Mutual Funds Are in Loss?

Start by resisting the temptation to turn one red number into an immediate transaction.

The correct response depends on where the problem sits.

• If the market is down but the fund, goal and allocation remain appropriate, the SIP may not need changing.
• If the fund itself shows persistent problems relative to the job it was selected to perform, a deeper review may be required.
• If the portfolio has drifted away from its intended allocation, the answer may be rebalancing rather than replacing funds.
• And if your financial goal has moved much closer, the investment horizon may matter more than either the market or the fund.

That is why the most useful principle during a difficult year like 2026 is simple: Loss is an observation. Continue, switch and rebalance are decisions. Do not confuse the two.

For eligible investors, Hexo Wealth Associates LLP can support the review and facilitation of mutual fund investments within its role as an AMFI-registered Mutual Fund Distributor, taking into account the investor’s stated goals, investment horizon, risk profile and existing mutual fund holdings.

Hexo Wealth Associates LLP | AMFI-registered Mutual Fund Distributor | ARN 353817

Disclaimer

This article is intended solely for general investor education and information. It should not be treated as personalised investment, tax, legal or financial advice, detailed financial planning, or as a recommendation to buy, sell, switch, continue, stop or rebalance any particular mutual fund scheme or investment portfolio.

Terms including Mutual Funds in Loss, Mutual Fund Losses, SIP Investment Strategy, Mutual Fund Switching, Mutual Fund Portfolio Rebalancing and Mutual Fund Performance Review are used to explain general investment concepts. Negative returns, benchmark performance or portfolio allocation should not be interpreted in isolation as instructions to undertake any transaction.

Mutual fund decisions depend on factors including stated financial goals, investment horizon, risk profile, liquidity requirements, existing investments and individual financial circumstances. Switching or redemption may involve exit loads and taxation depending on the scheme, transaction and applicable law.

Hexo Wealth Associates LLP is an AMFI-registered Mutual Fund Distributor | ARN 353817 and may receive commissions from Asset Management Companies on investments made under Regular Plans.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

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