Can my mutual fund go to zero?
It is quite possible that your investments are giving negative returns. But it is highly unlikely for the value of a fund portfolio to become zero. While the return on your investment (ROI) can be negative, it is impossible for your investment to become zero. In other words, you owe money to someone.
A mutual fund's Net Asset Value (NAV) may fall sometimes, but there is nothing to be concerned about. The only way mutual fund investment drops to zero is if all of the financial assets that it is made up of lose value.
However, while the return on your investment (ROI) can be negative, there is no way your investment itself becomes negative – meaning you owe money to someone – that is NOT POSSIBLE.
In the case of a Mutual Fund company shutting down, either the trustees of the fund have to approach SEBI for approval to close or SEBI by itself can direct a fund to shut. In such cases, all investors are returned their funds based on the last available net asset value, before winding up.
The maximum amount of money a mutual fund can lose is theoretically limitless, as the value of the fund's assets can decline to zero.
There is no guarantee you will not lose money in mutual funds. The profit and loss in mutual funds depend on the performance of stock and financial market. There is no guarantee you will not lose money in mutual funds. In fact, in certain extreme circ*mstances you could end up losing all your investments.
If you are wondering can mutual funds lose money, then the answer is yes as some mutual fund categories are more volatile. This means, while they might offer great returns, they can also offer higher risk. If you feel you are not up for the risk, you should look at the performance of mutual funds from other categories.
Mutual fund investments when used right can lead to good returns, keeping risk at a minimum, especially when compared with individual stocks or bonds. These are especially great for people who are not experts in stock market dynamics as these are run by experienced fund managers.
Funds can close for various reasons, but primarily they close because the investment advisor has determined that the fund's asset base is getting too large to effectively execute its investing style. A fund can cease to exist if it fails to perform and investors withdraw their funds.
Around 50% equity mutual fund schemes have underperformed against their benchmarks in 2023, an analysis by ETMutualFunds showed. There were around 243 equity mutual fund schemes in the market and 122 equity schemes have failed to beat their respective benchmarks in 2023.
Why mutual funds are a rip off?
However, mutual funds are considered a bad investment when investors consider certain negative factors to be important, such as high expense ratios charged by the fund, various hidden front-end, and back-end load charges, lack of control over investment decisions, and diluted returns.
Keep earning money
This may seem obvious, but it's best to avoid withdrawing large amounts from your portfolio during a recession. When stock values have declined, selling shares to cover everyday living expenses can meaningfully eat into your portfolio's long-term growth potential.
When your mutual fund has a significant capital loss, while other holdings incur capital gains, it might be time to sell. In such a case, if you sell the fund, you'll be able to secure a capital loss on your tax return. That loss can offset realized capital gains and ultimately lower your tax bill.
Under the final amendments, when a fund employs a derivatives strategy, the fund will generally be required to use the notional value to determine if 80% of its funds are invested in accordance with the focus its name suggests.
Capital losses that exceed capital gains in a year may be used to offset capital gains or as a deduction against ordinary income up to $3,000 in any one tax year. Net capital losses in excess of $3,000 can be carried forward indefinitely until the amount is exhausted.
In general, the funds need to recognize and distribute realized capital gains to the shareholder. Capital losses that are realized on an investment can be utilized to offset other capital gains. In the event that losses are in excess of gains, the losses can be carried forward to future years.
Like all investments, mutual funds have risk—you could lose money on your investment. The value of most mutual funds will change as the value of their investments goes up and down. Depending on the fund, the value could change significantly and frequently.
Last year, 47% of actively managed open-end mutual funds and exchange-traded funds beat their benchmarks - a marked increase over the 43% hurdle rate in 2022. Morningstar refers to the boost as a "surge." Yet active managers haven't become better at beating the market over the long term, as Morningstar acknowledges.
As a result, active equity fund share surged by 40 bps from 57.4% to 57.8% over February 2024 while it is up 620 bps on yoy basis. Passive fund share was up by 20 bps from 12.7% to 12.9% over February 2024 while it is down 20 bps on yoy basis.
Yes MF are under regulations of SEBI and have to follow those rules and regulations. They are not chit funds that would run away with your money.
What are the five cons of a mutual fund?
- High fees. Mutual funds have expenses, typically ranging between 0.50% to 1%, which pay for management and other costs to operate the fund. ...
- Market risk. Just as with stocks and bonds, mutual funds generally have market risk, meaning that prices can fluctuate up and down. ...
- Manager risk. ...
- Tax inefficiency.
Money market funds are generally considered to be a very safe haven for your cash. They are much less risky than mutual funds that invest in stocks. However, they are not federally insured and investors can lose money.
Market Volatility and Risk Management
If a fund consistently underperforms over multiple periods and fails to deliver satisfactory returns, consider exiting the investment. Research and select funds with a similar investment objective but better track records and performance history to redirect your investments.
Typically, the ideal holding period for an equity mutual fund is considered anywhere between a minimum of 3-5 years. But data shows that only investments in 3% of the units continued for more than 5 years.
Check Portfolio Turnover Ratio (PTR)
The portfolio turnover ratio measures the frequency with which a mutual fund buys and sells securities within its portfolio. A high turnover ratio may indicate that the fund manager is actively trading and making frequent changes to the portfolio.
