Just because your fund is down doesn't necessarily mean you should sell. Markets move in cycles, so an investment that's doing poorly this year might do much better next year. However, here are three clues that the time to sell may have arrived.
The fund is a persistent loser. That is, it has trailed similar funds for two years by a substantial margin - say, two percentage points or more.
The fund's investment strategy has changed. A small-cap fund manager should be sticking to small-cap stocks; a large-cap value fund manager should be buying large-cap value stocks. If that strategy changes - say, because the fund has a new manager - it messes up your overall asset allocation.
You could use the tax loss. (This applies only to funds in a taxable account.) Let's 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 "realized" loss to offset your gains in other investments, thereby lowering your tax bill for the year. In order to keep your asset allocation on target, you can turn right around and buy another large-cap growth fund. Or even buy back the very same fund after 31 days. 
