Your mutual fund app is red. What should you check?

I have heard this more than once

“I invested in mutual funds once. My app kept showing red. I do not think they are for me.” That is a conversation I have had in our initial meetings.

I understand the reaction. You worked for that money. Watching its value fall is uncomfortable. But the colour on an app cannot tell you, on its own, whether the original investment decision was sensible.

First, which kind of mutual fund?

“Mutual fund” is a broad label. An equity scheme, a debt scheme and a hybrid scheme do different jobs and carry different risks. Even two equity schemes can have very different portfolios.

Before deciding that all mutual funds are unsuitable, check the scheme category, its stated objective, the securities it holds and its risk level. If you did not understand those at the start, that is the first gap to close.

Then ask when you need the money

Money for a near-term expense should not depend on the equity market being favourable on a particular day. If you have put money you need soon into a volatile investment, the problem may be a mismatch between the product and the goal.

For a distant goal, short-term market moves need to be seen alongside your wider plan. That does not mean ignoring losses, and it does not mean every fund will recover. Staying invested for five or ten years is not a guarantee of a positive return.

Review the plan, not just the colour

A useful review looks at the fund against an appropriate benchmark and peers, over consistent periods. It also checks expenses, portfolio overlap and whether the scheme still fits the reason you bought it.

Sometimes the answer is to change an investment. Sometimes it is to change how often you look at the app. The reason should come from the review rather than the discomfort of one red day.

• What goal is this investment linked to?
• When do I need the money?
• Has the fund changed, or has my situation changed?

A calmer way to begin

If this is your first experience of market-linked investing, make room for the emotional side of it too. A portfolio only works if its risks are understandable enough for you to live with.

The aim is not to train yourself to ignore the app. It is to know what you hold, why you hold it and what would justify a change.