Why Mutual Funds are Going Down? Turn Volatility into Victory
Did you know that around 97% of Equity Funds had given negative returns in the current calendar year so far?
Yes, every time the market takes a hit, it creates chaos among investors.
News headlines scream panic, portfolios turn red and the instinct to react and cut your losses is stronger than ever.
But if history has taught us anything, it's that saying invested always wins. Markets have fallen before but have recovered.
In this post, you will see that “Smart investing is not about predictions but principles that stand the test of time.”
Let's start by covering the real reasons why Mutual Funds are going down in India.
Why are Mutual Funds Going Down in India? Key Factors at Play
As per the data recorded by the Association of Mutual Funds in India (AMFI), 14% of the market fell from February due to the following reasons:
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Economic Downturns
Financial markets have fallen before and have always recovered. The BSE 500 fell more than 20 per cent on three occasions during the 2008 financial market volatility crisis, Brexit and COVID-19. However, each time, the market came roaring back.
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Interest Rate Hikes & Inflation
Whenever the central bank increases the interest rates, borrowing money becomes expensive. The slower economic recovery and market impact on investments growth affect the market and you can experience a fall in the prices if you are investing during inflation. To give an example, in 2022, the S&P 500 benchmark dropped by 18% and tech stocks like Amazon and Tesla took a big hit, as they are more sensitive to interest rates and investment returns.
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Poor Management & Strategy
All funds are different and that’s where the role of the fund manager becomes important. For example, if you are investing in Small Cap Mutual Funds, make sure that the manager handling your investments is a small-cap specialist and has been managing the scheme for a long time. Frequent changes in the fund manager performance affect the scheme's performance.
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Underperformance in Sectors
Most mutual funds are invested in specific sectors like technology, healthcare or energy. So, when these sectors experience downturns, your money that is heavily invested in them may see a drop in value. For example, in 2021, the shortage in semiconductors affected the tech-focused mutual funds that were majorly investing in chipmakers.
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Geopolitical tensions
International events like trade wars and conflicts can severely cause the markets to fall. To give an example, the Ukraine war contributed to the high volatility in the financial market and impacted the ups and downs in the prices of mutual fund investments.
Must Read: 11 Common Mistakes to Avoid While Investing Mutual Funds
Turning Volatility into Victory: 3 Smart Investing Tips
The key to making money lies in following a strong investment strategy during a market fall. Here is a 3-step plan you can adopt to beat the market:
Step 1: Invest Now
Investing during a market downturn gives you the upper hand as you get to buy the same units at a lower price. Just a while ago, the US government paused the tariffs on all countries except China for the next 90 days. This news sparked a buying spree and the Nasdaq stock went up to 12% in just one day. If you act fast, you too can grab this opportunity before the window closes.
Step 2: Look for Strong Companies
Now that the market is moving, what you need to capture the gains is to concentrate and use an actionable strategy that identifies strong companies like Bajaj Finance, which have affordable values in the history of finance.
Step 3: Stay Invested
Remember that the market fall will not last forever and this is the time you can set yourself up for big gains. Patience is the key. Staying invested for 7 years or more gives you compounding returns and helps you grow your wealth steadily.
Also Read: Mutual Fund SIP Strategy for Beginners: What to do?
How to Choose the Right Fund in a Down Market?
Here are the three factors to take into account that will help you pick the right fund during a market fall:
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Running a Historical Check
The past performance of a fund helps you understand how it combats when the market goes negative. You get to know the consistency in mutual funds returns. If a fund has given consistent returns during market fall, it is likely to show such strong performance in the long term and have a good plan in action.
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Evaluating Key Metrics
High fees can eat your returns, especially during market fall, so consider looking at key parameters like expense ratio, manager experience, tax benefits from mutual funds and fund's strategy.
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Blending risk with goals
Make sure your investment goals and risk capacity are in line with your investments. This will help you choose the best SIP in the right fund and reach your goals 2X faster.
Did you know, "Only 18 funds have delivered positive returns during the market fall of 2025 so far?"
Yes, the next heading reveals the best performers to invest in SIP when market is down.
5 Best Mutual Funds Outperformed in Market Crash
Here are the 5 best performing mutual funds handpicked by an expert analyst that withstood the market crash:
| Scheme Name | Launch Date | Fund Category | 5 Month NAV Change | Category Average Decline |
|---|---|---|---|---|
| Parag Parikh Flexi Cap Fund | 05-05-2013 | Equity : Flexi Cap | -2.35 | -10.67 |
| Motilal Oswal Large Cap Fund | 06-02-2024 | Equity : Large Cap | -0.98 | -8.3 |
| ICICI Pru Large & MidCap | 09-07-1998 | Equity : Large and Mid Cap | -4.64 | -10.04 |
| SBI Multi Cap Fund | 05-03-2022 | Equity Multi Cap Fund | -3.57 | -10.42 |
| HDFC Mid-Cap Opportunities | 25-06-2007 | Equity : Mid Cap | -5.83 | -11.64 |
The above mutual fund performance has notably fallen much little than the other regular funds in the mutual funds industry during the market downturn of 2025.
Pro Tip: Beat market volatility using the SIP Calculator and know returns beforehand.
Common Mistakes to Avoid in Declining Market
Let's lay out the don'ts you should know when the market goes red:
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Panic Selling
It is natural to exit your investment when you see it falling and cut your losses. However, it is important to decide on rational rather than letting your emotions override the fear of losing money. The best thing you can do is compare the fund's performance to its peers and handle the situation logically.
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Overinvesting in High-Risk Funds
Do not limit your portfolio, diversifying your portfolio across different investments like debt, equity and commodities to give exposure. This will prove to be the best asset allocation strategy to minimize risk management in investing.
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Ignoring Long-term Investment Benefits
Remember, the main goal is to create wealth over time. One of the biggest advantages to starting SIP investment strategies in the first place is rupee cost averaging, which gives compounded returns in the long term.
Don’t Miss: Investing in SIP is Good or Bad? Learn the Pros & Cons
Conclusion
In short, you shouldn't wait because when the market recovers, it doesn't send invites out. When the sentiments correct, quality stocks move at a higher speed and the early arrivals take advantage.
In our expert opinion, it is not the time to sit on the sidelines but to turn the market volatility into victory and take full advantage of buying high-quality investments at lowered prices.
See, for example, Bajaj Finance nearly fell 84% during the 2015-16 correction, but soon it delivered 11X returns when the market recovered, and those who stayed invested took the winnings home.
While markets evolve, the core of successful investing remains the same: informed decisions, discipline and a long-term outlook.
