Hundreds and thousands of people have this question in their mind – Can I Lose All My Money in Mutual Fund ! They get panic when market goes down.
Often, we have heard one common sentence, from people, “Can I lose all my money in a mutual fund?” Yes, you can. Even though the chances are slim, this part is worth paying attention to.
A mutual fund offers a chance for long-term development and additional income. Like any investment, a mutual fund exposes you to a certain amount of risk.
In contrast to bank-insured deposits, deposits are safeguarded in mutual funds. In principle, if a mutual fund does badly, you might lose your whole investment. However, while losses are not unusual, a mutual fund has several features that reduce the chance of loss.
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Can I Lose All My Money In Mutual Fund?
You may invest in banks and post offices in FDs and RDs that are considered the safest location to invest. Mutual funds have not gained the same confidence since many investment AMCs (Asset Management Company) are not very popular.
Mutual money has also suffered since many individuals think that they may lose money because no returns are guaranteed. In addition, clients are warned that mutual funds are susceptible to market risk.
However, mutual funds may provide inflationary returns if you realize the investment and investment, depending on your financial objectives and risk profile. Let’s dive deeper into this article, “Can I lose all my money in a mutual fund?”
Markets like businesses have cycles. Well, it’s not the first time the market has had a negative or non-return period. Corrections have been made previously and corrections will be made in the future. This is because markets represent how an economy operates, and even the biggest economies in the world go through high, low, and non-growth cycles.
But whether you’re a good investor or not, depends on how you respond during the low and no growth times.
If you follow some the best market strategies then you will never lose your money in mutual funds.
- Investments at this stage
It generally takes SIPs more than three years to get good results. But when the market solidified, following this downturn, it hit a new level.
- Holdings
A mutual fund is established when an investing firm develops an investment portfolio. Each fund has a defined strategy or aim and the securities owned in the fund reflect the long-term goals of the fund. A growth fund usually owns stock, while a revenue fund holds assets that provide interest, such as bonds or mortgage-backed securities. Mutual funds are priced every day following the stock closure.
- Securities
A share of the stock is a stake in a business. When a business fails, its stock is usually worthless. However, bonds are loans, and if you purchase one of these securities, you face the risk of defaulting on the borrower. If that occurs, your income dries up, but you won’t lose it all. But debt instruments typically have some residual value since creditors are entitled to recover the issuer’s assets following a bankruptcy. You may not receive all your money returned, but you may get some cashback.
- Diversity
Diversity gives you a degree of protection against losses of mutual funds. By buying shares in a fund that exclusively invests in specific kinds of companies, you may lose everything if advancements in technology or economic conditions lead to financial difficulties for certain sectors.
If you purchase shares in a fund that invests in a wide variety of businesses, your shares will become worthless only when all firms from all sectors go bankrupt.
- Management
Many reciprocal funds are actively managed, such that fund operators purchase and sell shares continuously.
These transactions are designed to earn money via the sale of assets when current holdings increase their value and to benefit from price declines to acquire additional securities at a discount.
With an actively traded fund, it is improbable that all the funds are presently linked in securities. While some cash is available in the fund, the value of the fund cannot go to zero even if all other assets become worthless.
- SIPC
Apart from losses in performance, if the investment company holds your shares bankrupt, you may lose money in a mutual fund. Most brokerage companies, however, belong to the Securities and Investor Protection Corporation.
This member-owned non-profit corporation was established in 1970 to protect investors. The SIPC does not pay you if your mutual fund falls due to performance problems, but it compensates you if you lose your money as the broker becomes insolvent.
Also Read: Importance of Asset Allocation and Diversification
Tips to Handle When You are Losing Money:
- Keep yourself calm
In general, the stock markets do well over a lengthy time. In the near term, volatility produces price increases and decreases. While mutual funds may lose money due to short-term market disruption, cases of negative returns dramatically decrease after 3-4 years of ownership in the long run.
As you can see, if you have a longer period of 7 to 10 years, you won’t have to worry about the news and lose yourself tranquility.
- Avoid speeding redemption
Yes, you can lose money in declining markets in mutual funds. In most instances, equity mutual funds redeemed one year before investment incur a 1 percent exit load. Even after that, if your investment gain exceeds Rs 1 lakh for any given financial year, LTCG tax may apply.
Some investors think they may withdraw their money from a reciprocal fund when its value falls and invest again when value begins to rise again.
This sounds nice in principle but is generally not good. Most of the time, individuals remove their money from the MF and wait for it to stop dropping and start rising again.
- Compare performance from several categories with other funds
Some types of mutual funds are more volatile. This implies that although they may provide tremendous profits, they may also be riskier.
Small-cap mutual funds, for example, have strong returns. They also have a greater risk, though. In terms of small equity mutual funds, big-equity mutual funds were less hazardous.
You may perhaps desire more rewards and are prepared to accept the risk. In this case, also, you should examine the finest investment funds in the other category.
- Sector Research
Another reason your reciprocal funds decrease may be because your investments are concentrated on the industry. This is only important for you if you have invested in a sector fund. Sector funds only invest in a certain sector or industry.
Even though the markets are generally good, certain industries may suffer.
If a particular industry is underperforming, you have to thoroughly study the sector.
Sector funds are regarded the riskiest for some reason – when compared with other equity mutual funds they are much tougher to forecast.
Therefore, if you have invested in a sector fund and are losing money, pay attention to the health and prospects of that sector.
- Diversify
Perhaps this is the only method to offset your loss of mutual funds at now. If your portfolio is solely exposed to equities, add some liquid funds to the mix. They not only balance your capital losses but also enable you to generate money for short-term objectives.
Diversify across asset types, too. Gold is regarded as a great safeguard against market instability since gold prices typically increase when markets are finished. You can see that about 5% of your portfolio is exposed to gold.
Asset allocation and diversification is very important. If you follow it properly, then you will never die poor. You can accumulate a lot of wealth in your lifetime.
Believe me if you follow certain rules and invest in a disciplined manner then this question “can I lose all my money in mutual fund” will never come to your mind.
Also Read: Is It Safe to Invest In Stocks – 7 Fun Facts About Stock Market
Final Words !
To conclude everything, again the question pops up in mind, can I lose all my money in mutual funds? Yes. So, stick to your SIPs and take advantage of these adjustments. After all, you receive more units with the same investment amount when the market falls.
This guarantees that you have a complete body of additional units whose prices will rise and you will earn a greater return as markets grow.
Investing is and should be viewed as a long-term game. Maintain cool, invest in vision, keep yourself up to date and you’re nice to go!
