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FAQs

What should you do if you find that your mutual fund is losing money? ›

Diversify. This is perhaps the only way to counter your mutual fund loss at the moment. If your portfolio is exposed only to equity, then add some liquid funds to the mix. They will not only balance out your losses due to equity but will also allow you to raise money for short term goals.

For example, market fluctuations causing a recession, hikes in interest rates, etc. affect your mutual fund investment as well. In these tough times, even the best funds take a hit. One thing to always avoid doing is timing the markets because the more one tries doing it, the more he is at a chance of losing.

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. That's why it is advisable to understand how mutual funds work. Mutual funds are managed by fund managers who invest in a wide variety of stocks, bonds and commodities.

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.

Debt mutual funds are likely to offer better returns in 2023. They will offer even higher returns when the RBI starts cutting interest rates. Want to find out what's happening?

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.

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.

Mutual funds come with many advantages, such as advanced portfolio management, dividend reinvestment, risk reduction, convenience, and fair pricing. Disadvantages include high fees, tax inefficiency, poor trade execution, and the potential for management abuses.

What are 4 common investment mistakes? ›

All funds carry some level of risk. With mutual funds, you may lose some or all of the money you invest because the securities held by a fund can go down in value. Dividends or interest payments may also change as market conditions change.

However, like any other business, Mutual Fund companies and schemes can shut down for a multitude of reasons. Unfortunately, events such as scheme mergers, Mutual Fund House being shut down or sold off cannot be predicted with certainty.

“The 2022 underperformance of Indian Composite Bond fund managers was the lowest across all categories, at just 45.4 per cent,” it said. However, over the 10-year period, 98.2 per cent of these funds failed to beat their benchmark, the highest underperformance rate across categories.

"If you want to stay invested, sell at a loss and use the proceeds to buy into a similar, but not 'substantially identical,' fund," Wybar says. "This way you can recoup the loss and participate in upside returns when the market goes back up."

Consistent underperformance for over and above 18 months is a good indicator to consider disinvesting from the fund to cut further losses. Need for rebalancing your portfolio: To have your investments aligned with your risk appetite and financial goals is very important.