The mere fact that a fund has low returns or even losses isn't a good reason to sell. If the overall market is down, or the specific sector your fund invests in is out of favor, you can't expect your fund manager to be a miracle worker. But if you own a fund that trails similar funds for two years by a substantial margin - say, 2 percentage points or more - think about moving on.
2) The fund's investment strategy has changed
If you've attempted to create a diversified portfolio, then you're probably counting on the managers of all your funds to invest a certain way. The small-cap fund manager should be sticking to small-cap stocks, and the large-cap value fund manager should be buying large-cap value stocks. If they stray, it puts your entire plan in jeopardy.
3) There's been a manager change
Any time your fund gets a new skipper, you should closely monitor the situation to assure two things: first, that the new manager is following the same investing style and strategy as his predecessor; second, that performance hasn't suffered. Give a new manager one year (and no more than two) to prove himself.
4) You could use the tax loss
There are times when you might be able to lower your tax bill by dumping a losing fund yet still pretty much maintain your asset mix. For example, say you own shares in a large-cap growth fund that are worth less than you paid for them.
If you sell, you can use the loss to offset gains in other securities. Then, you can turn right around and buy another large-cap growth fund. Or, you can buy back the very same fund after 31 days.
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