Can a mutual fund go to zero?
The chances of a mutual fund becoming zero are very low. This is because a mutual fund invests in several assets. So, even if a few assets do not perform well, other assets can generate returns. This can balance the losses of non-performing assets.
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.
Mutual fund loss is a probability when you invest in the market2 since the market fluctuates constantly. Therefore, in case of facing losses in your mutual fund investments, it is essential to stay proactive and informed.
If a mutual fund scheme winds up or closes, the assets of the scheme are liquidated. Following this, the proceeds are distributed to the unit holders in proportion to their holdings, based on the prevailing Net Asset Value (NAV) after deducting the relevant expenses.
Beware of risk.
invests—the principal—because securities held by a fund go up and down in value. Dividend payments may also fluctu- ate as market conditions change. Mutual funds and ETFs have different risks and rewards. Generally, the higher the potential return, the higher the risk of loss.
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.
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.
Therefore, an investor can also become susceptible to making wrong investment decisions in his eagerness to make a lot of money quickly. So, can a person become rich by investing in mutual funds? Yes, it is possible!
Interest Rate Risk
In particular, interest rate fluctuations can impact bond prices. Rising interest rates, for example, cause bond prices to decline, which might also lead to a decline in the value of mutual funds with significant bond investments.
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.
Should I exit my mutual fund?
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.
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.
When it comes to equity, it is very important that, especially when you are thinking about long-term goals, you want to exit as soon as you have 2-3 years left approaching your goal and there are just 2-3 years to get there. That is number one.
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.
The massive inflow in hybrid funds pushed the category's AUM to Rs 7.2 trillion in March 2024, a significant increase of 51 per cent from FY23. Overall, the mutual fund industry saw its AUM reach a record high of Rs 53.40 trillion in March 2024, reflecting a positive trend.
Stay The Course With Long-Term Funds
You may ask, Why leave money in mutual funds that lose value in a downturn? The answer is that individual mutual fund shareholders rarely, if ever, get out of the market near its top. And they rarely, if ever, get back into the market at its bottom.
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.
Mutual funds are largely a safe investment, seen as being a good way for investors to diversify with minimal risk. But there are circ*mstances in which a mutual fund is not a good choice for a market participant, especially when it comes to fees.
All investments carry some degree of risk and can lose value if the overall market declines or, in the case of individual stocks, the company folds. Still, mutual funds are generally considered safer than stocks because they are inherently diversified, which helps mitigate the risk and volatility in your portfolio.
How do I know if my mutual fund is doing well?
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.
Greetings, Investing in mutual funds is an excellent approach to increasing your wealth, as they have the possibility to give higher returns than inflation and help you achieve your financial goals. Apart from this, it also has additional benefits in your investing journey.
High net worth individuals put money into different classifications of financial and real assets, including stocks, mutual funds, retirement accounts and real estate.
| Ticker | Name | 5-year return (%) |
|---|---|---|
| STSEX | BlackRock Exchange BlackRock | 16.27% |
| USBOX | Pear Tree Quality Ordinary | 16.13% |
| FGLGX | Fidelity Series Large Cap Stock | 16.08% |
| PRCOX | T. Rowe Price U.S. Equity Research | 16% |
In 2022, it was observed that 55 percent of the households whose head was in the 42-57 age range owned shared in a mutual fund in the United States. However, only 36 percent of households where the head was aged between 18 and 25 owned shares in a mutual fund.
