Should I Redeem My Funds Since the Markets are Down?

According to LiveMint, the Indian AUM jumped up 23% in 2025 to ₹65.7 trillion in FY2025. Additionally, mutual funds also experienced an all-time high penetration during this period.

But, when the markets are down? Your portfolio is flashing red. That sunken feeling of uncertainty is completely justified. It's only natural to be anxious and question, "Should I redeem mutual funds when markets fall to prevent further loss?"

However, reacting emotionally and making investment decisions during market correction can do more harm than good. Market corrections are uncomfortable, but also a very normal part of investing. Usually, it isn't the best practice to redeem your funds based on short-term market movements.

It is imperative to learn about the causes of the downturn, assess the situation, and make an informed decision rooted in strategy and not panic. This article will equip you with the right tools to make an educated decision, if at all, whether it is the right move to redeem or hold investments in a downturn.

Understand Why Markets Fall

Before giving into an impulsive emotional reaction, one must understand how markets work and why they fall.

Markets don't follow a linear trajectory, and volatility is an embedded feature of the market, not a flaw. Geopolitical tensions, corporate earnings, inflation data, economic cycles, and other global events are just a few of the many reasons that could cause a rise and fall in the markets.

Sometimes, a piece of news can trigger a broad selloff, causing an immediate dip in the market. However, it is a natural and cyclical process. Markets correct themselves over a certain period of time. 

These fluctuations are temporary and often short-lived. Over the decades, markets have consistently shown an upward trend despite recessions, wars, calamities, pandemics, and political instability.

Gathering the knowledge to better understand the inevitable nature of market dips will prepare you to handle them with ease. Your perspective towards investing makes a big difference to your long-term standing in the market.

Common Mistake: Panic Selling Mutual Funds

Panic selling mutual funds means booking your losses immediately when the market dips. Scrambling for a mutual fund exit strategy immediately during a market bear run might look like cutting your losses, but it is essentially locking your losses permanently.

You're not alone in making this mistake, it is natural instinct. However, let's understand with an example, imagine your investments are down by 10%. Redeeming it now means booking your loss. But if you redeem mutual funds in a market downturn, data suggests that you are more likely to make up the loss and perhaps book profits in the future.

Do not try to time the market. The people who exit during a crash are confused about when to enter the market again. They keep waiting for signs or corrections to resurrect their position, only to end up buying high after the prices have surged.

This mistake disrupts your portfolio growth and interrupts the process of compounding and building long-term wealth. The major gains in the market occur after a short dip; don't let a mistake throw you off the sidelines.

Ask Yourself: What Was My Investment Horizon?

Smart investment decisions during market correction are a deliberate choice. When you began, it must have been with a goal in mind: retirement, education fund, or just building wealth in the long-term. These goals must dictate your investment habits in the present day. 

Market dips can be challenging. However, if your investment horizon has some years, these are just minor setbacks that don't require any prompt action. In fact, selling in these conditions usually end up in regret. It is historically proven that the market corrects and rebounds. That's when pulling out prematurely can cause a significant dent in your long-term financial plans.

In such volatile conditions, question whether your goal has changed or if it is just the mood of the market. If your timeline is undisturbed, it's best to let your funds stay. Avoid taking impulsive reactionary decisions and let your long-term goals and investment horizon dictate your actions.

SIP Investors - Stay the Course

If you're investing through a Systematic Investment Plan (SIP), a market downturn is perhaps the best time for you to stay the course. Your SIP plan allows you to buy more units of a share at lower prices. This is called Rupee Cost Averaging.

It is a goldmine for disciplined investors because over time, it increases the volume of units, reduces the average cost per unit, and boosts returns when the markets recover.

SIPs provide compounded returns if you're invested in them for the long term. However, if you sell during a market dip, it defeats the purpose of investing through a SIP, giving you lower returns in the long run.

The advantage of SIPs lies in the fact that they grow when you don't interfere. Let them run their course, by staying invested in down markets. It builds value in those moments.

What if You Really Need The Money?

While redeeming is a bad practice, it can often be a result of sheer compulsion due to unforeseen circumstances, such as medical emergencies or sudden job loss.

It is advisable to only redeem the amount you absolutely need instead of dissolving the entire portfolio. This helps you stay on track and eliminate unnecessary losses in your investments. 

It is key to look into other investments, such as liquid funds or ultra-short-term debt funds, for any urgent cash requirements. Consider opening a Systematic Withdrawal Plan (SWP) to generate regular income without disrupting your entire fund.

When Should You Consider Redeeming?

Here are a few things you must ask yourself when trying to understand whether you should redeem mutual funds in a market downturn:

1. When your goal is near ?

   If you'll need money in the next 6-12 months, consider shifting your investments to safer assets like liquid or debt funds. 

2. Your fund is underperforming

   If your fund has consistently shown poor performance based on peers or benchmarks, even in stable markets, it's time to look for a switch.

3. Your goals have changed

   Priorities shift as life progresses, base your decisions on your goals not market volatility.
   

Key Takeaway

American businessman Charlie Munger said correctly, The big money is not in the buying or selling, but in the waiting. Down markets are a test of your patience and the integrity of your financial plan. Reacting emotionally to market volatility leads to poor results. Staying invested in these times is paramount to building long-term wealth.

In these times, it is important that you make a strong financial plan and trust the plan to give you good returns in the future. Temporary market dips should not have a permanent impact on your financial plans.

Instead of selling in panic, reevaluate your goals, investment horizon, and the overall picture of your portfolio to make an informed and educated decision. 

Conclusion

Market down runs are a part of every investor's journey. Those who stay the course and make calculated decisions based on their goals end up with successful welath creation strategies in the long run.

Ensure that you ask yourself necessary questions, such as, 'Have my goals changed?' Am I just panicking? If you're still unsure, seek a trusted advisor who helps you stay on track with your goals with a certified expert on AssetPlus and make smarter financial decisions. The experts at AssetPlus can help you create a structured portfolio with data-backed research and personalized portfolio reviews.

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FAQs

Should I stop my SIP when the market is falling?

No. In fact, if you redeem mutual funds in a market downturn, you get more units for lower prices, boosting your overall returns.

Is it ever a good idea to redeem during a market fall?

Only if you're in urgent need of funds or your investment goals are near. Ideally, staying invested is a good idea. 

What if I redeem my mutual funds at a loss?

You book a loss permanently and miss out on recovery when the market rebounds. 

How do I know if my fund is underperforming?

Compare it with its benchmark and analyze peer funds over the period of 1-3 years. Consistent underperformance calls for a switch. 

How often should I review my investments during volatile markets?

You should review it periodically, ideally on a quarterly basis. Avoid checking daily to prevent reactive decisions.