Summary of this article
Mutual fund schemes showing negative returns nearly tripled recently.
Global market shocks and equity corrections caused negative returns.
Retail investors stayed resilient with record monthly SIP contributions.
Indian mutual fund investors saw persistent volatility in FY 2025-26 (FY26). The broader market remained battered by geopolitical disruptions, tariff tensions and foreign capital exits.
According to the Securities and Exchange Board of India’s (Sebi’s) Annual Report for FY26, the total number of loss-making mutual fund schemes nearly tripled during FY26 compared to the preceding fiscal year.
Mutual Fund Schemes See Red In FY26
Performance in terms of the rate of return across mutual fund categories indicated an increase in the number of schemes which have given negative returns. A total of 731 mutual fund schemes recorded negative annual returns. Notably, the number nearly tripled compared to 243 schemes that were in the red in the preceding fiscal.
The data also showed that schemes which saw annual losses worse than minus 10 per cent rose to 93 in FY26, up from 30 schemes in FY25. On the other hand, schemes which delivered returns between minus 5 per cent and minus 10 per cent increased to 146 schemes from 41 in the preceding fiscal. Additionally schemes with returns between 0 per cent and minus 5 per cent saw the biggest increase, expanding to 492 schemes in FY26 compared to 172 schemes in FY25.
A Move Away From 10% Returns
Typically, retail investors start investing in mutual funds with the expectation that schemes will consistently deliver double-digit annual returns in the range of 10-12 per cent. However, the performance distribution in FY26 showed that the baseline shifted significantly in FY26, as high-yielding schemes became relatively scarce.
According to Sebi’s report, the number of schemes delivering more than 10 per cent returns decreased to 198 in FY26, down from 304 schemes in FY25. Schemes generating more than 5 per cent returns fell to 737 from 1,156 in the preceding fiscal.
On the other hand, schemes delivering single digit returns between 5 per cent and 10 per cent fell to 539 in FY26 from 852 in FY25. However, the schemes which delivered positive returns between 0 per cent and 5 per cent grew to 373 in FY26 from 218 in FY25.
Why Did Mutual Funds Schemes Turn Loss-Making
Sebi mentioned in its report that the changing trends in returns of mutual fund schemes was caused by factors, such as global macroeconomic shocks, domestic equity market corrections, and interest rate movements.
It was also likely that scheme returns decreased due to broad secondary market corrections, which saw benchmark equity indices like the Nifty 50 decline by 5.1 per cent in FY26, the report said.
Additionally, sectoral weakness was also seen in the Nifty Realty index, which fell 23.5 per cent, and Nifty IT, which fell 21.2 per cent. Additionally selling pressure from foreign portfolio investors (FPIs), who pulled out a record net outflow of Rs 1,52,692 crore from Indian equities during FY26 increased pressure on the mutual fund industry.
Investors Hold Firm Amid Volatility
Despite a trend of relatively lower yields compared to the preceding fiscal and loss-making schemes, retail investors continued to demonstrate resilience by remaining invested in the market.
Amid the declining returns, the mutual fund industry’s unique investor base expanded by 13.20 per cent to reach 61 million during FY26. Data from the report also showed that the total active systematic investment plan (SIP) accounts grew to 104.50 million. Additionally, the average net monthly SIP contributions increased by 25.80 per cent to hit a record Rs 16,413 crore, propelling the mutual fund industry’s total assets under management (AUM) to Rs 73.7 lakh crore by the end of March 2026.
