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.
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.
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.
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.
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 chances of your mutual fund investment value going to zero are practically almost impossible as it would mean that all the assets in the fund's portfolio will have to lose their entire value. However, the returns from a fund can go to zero or even become negative.
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.
Mutual funds have sales charges, and that can take a big bite out of your return in the short run. To mitigate the impact of these charges, an investment horizon of at least five years is ideal.
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.
Has anyone gotten rich from mutual funds?
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.
There is no better time to start investing. It is very difficult to time the markets and although the markets are due for a correction, it would not be wise to wait further. Also, when it comes to SIPs, there is not much merit in timing the markets. We would suggest you invest in different mutual fund categories.
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.
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.
However, if you have noticed significantly poor performance over the last two or more years, it may be time to cut your losses and move on. To help your decision, compare the fund's performance to a suitable benchmark or to similar funds. Exceptionally poor comparative performance should be a signal to sell the fund.
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.
Due to this, mutual funds offer you the benefit of diversification. However, during a market crash, stock prices come down. This, in turn, pulls down the performance of mutual funds holding these stocks. Companies, too, face a tough time with their operations taking a hit, and it takes time for stocks to recover.
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.
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.
What if I invest $10,000 every month in mutual funds?
Jiral Mehta, Senior Research Analyst, FundsIndia said that in this strategy, if you invest Rs 10,000 every month, assuming annual returns of 12 per cent, it takes 8 years to reach the Rs 16 lakh maturity amount.
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.
Simply stated, alpha is often considered to represent the value that a portfolio manager adds or subtracts from a fund portfolio's return. An alpha of 1.0 means the fund has outperformed its benchmark index by 1%. Correspondingly, an alpha of -1.0 would indicate an underperformance of 1%.
You also have n = 10 years or 120 months. FV = Rs 1,84,170. So, the future value of a SIP investment of Rs 1,000 per month for 10 years at an estimated rate of return of 8% is Rs 1,84,170.
If you invest Rs 1000 for 20 years , if we assume 12 % return , you would get Approx Rs 9.2 lakhs. Invested amount Rs 2.4 Lakh.
