Should you sell your mutual funds when the market falls?

A fall in the market lowers your fund's NAV, the price of one unit, but you still own the same number of units. The fall turns into a loss only if you sell at the lower price. Whether to sell depends on when you need the money and whether the fund still does its job, not on the headline.

This page does not tell you to sell or to hold. It sets out what each choice does, so the decision is yours and made with the facts in front of you.

Should you sell your mutual funds when the market falls?

It depends on two things: when you need the money, and whether the fund itself has changed. A drop in prices answers neither question.

People sell in a fall for understandable reasons. Some fear the fall will go on. Some need cash and the units are the only place to get it. The cost of selling is the same in both cases. A value that was down on paper becomes a loss you have taken. The units you sold no longer take part in whatever the market does next.

If your goal is many years away and the fund still does its job, a fall matters less to that goal than to money due soon. The rest of this page works through both situations.

What happens to your money in a fall if you do nothing?

Your number of units stays the same, and only their price moves. A unit is one share of the scheme's assets. The NAV is worked out every day by dividing the scheme's net assets by the number of units outstanding. When the holdings lose value, so does the NAV.

Here is one past fall as index arithmetic. It is a price index, not a fund, so there are no dividends, costs or tax in it. Suppose ₹1,00,000 had moved exactly with the NIFTY 50. The index is a list of 50 companies picked by fixed rules, and its combined value is tracked every day.

• On 14 January 2020 the index closed at 12,362.30, so your ₹1,00,000 starts there.
• On 23 March 2020 it closed at 7,610.25. The same amount would have shown about ₹61,560, a fall of 38.4%.
• The first close at or above the January level came on 9 November 2020, at 12,461.05. The amount would have shown about ₹1,00,799.

That is about 10 months from the January close, and 7½ months from the March low. Anyone who sold on 23 March 2020 would have turned a ₹38,440 paper fall into a loss they had taken. For funds that follow an index, see index funds.

The earlier fall in 2008 ran longer. The NIFTY 50 closed at 6,287.85 on 8 January 2008 and at 2,524.20 on 27 October 2008, down 59.9%. Its first close at or above the January level was 6,312.45 on 5 November 2010. That is about 2 years and 10 months after the January 2008 close, and just over 2 years after the low.

A different index has its own dates. The NIFTY Smallcap 250 went from 4,039.14 on 2 January 2008 to 1,081.62 on 2 December 2008, down 73.2%. These are past dates, not a pattern. Nothing in them says what the next fall will do, or how long it will last.

What happens if you sell during a fall?

Selling turns the fall into a realised loss. A realised loss is one you have booked by selling, as opposed to one that exists only on paper. The tax rules call it a capital loss, a loss on selling an asset such as fund units.

Here is how that loss can be used under the Income-tax Act, 2025.

• A short-term capital loss can be set against your other capital gains that year, whether short-term or long-term. Short-term means units sold within 12 months, for an equity-oriented fund.
• A long-term capital loss can be set only against long-term gains.
• A capital loss cannot be set against your salary or any other kind of income.
• You can carry it forward for up to eight tax years, but only if you filed your return by the due date.

Other things change as well.

• Timing of the money. SEBI's Master Circular says the proceeds of a redemption must reach you within 3 working days. A redemption is selling units back to the fund.
• The price. You sell at the applicable NAV, the price that applies to your order.
• Buying back. Buying back later is a new purchase at that day's NAV, with a new holding period. The holding period is how long you have owned a unit, and it decides whether a gain is short-term or long-term.
• Exit load. Some funds charge a fee, called an exit load, if you sell within a set time after buying. Exit load in mutual funds explains where to look.

If you are weighing a move into another fund, remember that a switch is also a sale of the first fund. How to switch mutual fund schemes covers it.

Does it matter why the market is falling?

For how a fund works, the cause makes no difference. A war, an election result and a recession scare all act on the fund the same way. The holdings change in price, the NAV follows, and your units stay as they were.

Past dates show how sharp a single day can be. On 4 June 2024 the NIFTY 50 index fell about 6% in a day, from 23,263.90 to 21,884.50. Three trading days later, on 7 June, it closed at 23,290.15, above where it had started. Again, past dates, not a pattern. Nothing here says why it fell or what comes after a day like that.

Whatever the cause, whether an election, a war or a scare, the questions that count are the ones you can answer for yourself. When is the money needed? Does the fund still suit the goal? How large a fall can you sit through without being pushed into a sale? A headline answers none of them.

Should you stop your SIP when the market falls?

Stopping a SIP sells nothing. A SIP, or systematic investment plan, is a fixed amount invested at regular intervals, usually monthly. Stopping it ends future instalments only. The units already bought stay invested until you redeem them.

A SIP invests the same amount each time, so a lower NAV buys more units and a higher NAV buys fewer. That is called rupee-cost averaging. Is a SIP safe? walks through a worked example. Averaging is not a promise of a better result than a lump sum, which is investing a larger amount at one time. Neither route protects you from a fall in the NAV.

So the question is one of money and timing. Do the instalments come from money you may need soon? Is the goal still far off? Would stopping leave you short of a cushion? The answers are yours.

If you do stop, do it properly. Letting debits fail is not a way to pause: SEBI told AMFI that monthly SIPs are closed after 3 failed debit attempts. How to stop or pause a SIP explains the options.

Buying more in a fall is a separate question. When is the right time to invest in lump sum and SIP deals with waiting for a dip.

When can selling in a fall still make sense?

Selling in a fall can still be the plan in these situations, and they carry as much weight as the reasons to stay. You need the money within months. Money set aside for emergencies is there so that a sudden expense does not force a sale when prices are low. See where should you keep your emergency savings, which suggests three to six months of expenses.

The fund has changed. A fund cannot change its fundamental attributes without a written notice to each unitholder. You also get at least 30 calendar days to exit at NAV without exit load. A fall on its own is not such a change. Separately, the riskometer is checked every month, and any change to it must be sent to you by email or SMS. The riskometer is the risk label, on six levels from Low to Very High, that SEBI makes every fund show. When should you sell a mutual fund covers a changed fund.

Your mix no longer fits your plan. After a fall, your mix may be far from what you planned. Equity means shares of companies; debt means loans to governments, banks or companies, in the form of bonds. Rebalancing means moving money back to the mix you chose. How to rebalance your mutual fund portfolio goes through it. A habit of acting on fear is a different matter, and common behavioural biases investors must avoid describes it.

What can you do instead of selling?

Start with your goal date and your mix, because they set what a fall means for you. If you need cash for a short time, a loan against your units is one option. Koshex arranges loans against mutual funds.

Koshex talks you through sharp market falls before you redeem.

If you do decide to sell, how to sell mutual funds online takes you through it step by step. To read about the funds that hold company shares, see equity funds, or browse all mutual funds.