Can Someone Lose Money in Mutual Funds Rather Than Gaining?


In a nation like India where the economy is still on a fluctuating growth graph, mutual funds are considered to be a taboo and sceptical financial product. There is a lot of negative air around them, which is related to delayed returns, fear of loss, and also for being a highly misunderstood mode of investments. In all actuality, mutual fund investments are not yet proven foolproof, but at the same time, they cannot be translated as losses only! People gain, people, lose money in mutual funds and there are various reasons for both.

One must understand that if you have invested in mutual funds or a fund that has good proportion in equity, theoretically – the money can be lost, practically – losses and gains would depend on a lot of factors. Foremost factor in mutual funds investments is TIME. All these investments are time sensitive. For example, if your portfolio is on 100 at a given point of time, it could grow to 105 and come down to 95 too in a shorter time, but if you wait for a longer time, chances of the equity going down become negligible. Yet, unprecedented shockers can never be ruled out.

Here is a little story that we would like to narrate to our readers that give a fair example of the vulnerability of mutual funds. There was a huge financial crisis in the year 2008. The stock markets were facing major breakdowns and stock prices had collapsed down to almost 50% deterioration for all the investors across the globe. Investors were in an absolute panic as this was quite a huge amount of loss. Nevertheless, they held on the patience and within a year their portfolio values bounced back to their 100%, bringing an NPNL scenario and a growth prospect from there on. Thus, the chances of losing in mutual funds on a long-term investment are fairly less.

You have to put a straight math to your investments if you wish to understand mutual funds gains clearly.

Just understand that if you invested 100,000 and you hold it for 10 years, and you are earning a CAGR of 15%, you end up with approximately 405,000. Now, if in the eleventh year a shocker event reduces it to half, say 202,000, this still counts as a return as compared to the gains on fixed deposits in India.

Moreover, one must always be careful with their mutual funds investments. One way of doing that would be to choose a certified and well-reputed mutual fund agency. Other is to put a lot of meaningful research before investing your hard-earned money.

Now let us take a look at the primary reasons that amount to people losing money. One must understand these reasons if they are looking to invest in mutual funds to save.

The Time Period is Ignored

It is important to stay invested for at least 3 years to gather decent returns from your investment. People who ignore this are more likely to generate losses. More the dedicated time, lesser are the chances of losses. One must have an investment strategy in place with clear time-period in mind. Early exits due to temporary market volatility are a complete NO!

Knowledge and Research is not Considered

More often than not, people start making investments and expecting mutual funds gains without gaining knowledge about the subject. Right knowledge is an absolute imperative, which comes with a thorough research. If you do not put in a good research, you may end up investing in instruments that are not likely to reap profits. Lack of knowledge also makes people exit at a wrong time. Therefore, it is important to read, attend investor programs and get hold of a financial advisor to understand the market and investment process.

Not Differentiating Trading from Investing

Making mutual fund investments is not the same as stock trading. You have to choose what you are interested in as per your financial goals. Trading helps to make short-term gains while investments require longer times to prove beneficial.  In addition, mixing the two is a disastrous step towards losing money. This can be avoided by laying down clear financial goals and achieving them accordingly.

Falling for the Greed of Unrealistic Returns

It is not always that your expectations form mutual funds investments would be met, especially the unrealistic return potential you may have in mind. The market is always fluctuating. Sometimes you may get returns more than your expectations, as high as 22% in a year and sometimes you may have to adjust with lower gains such as 12% only. There is no sensibility in exiting a fund just because of lesser returns in a particular year. Mutual funds gains are great but they undeniably involve risk. It is better to accept this fact as soon as possible. Also, returns are directly proportional to the risk-taking capacity of the investor. Unrealistic profits require unrealistic investment and risk appetite.

Approaching Unreliable Mutual Fund Agencies and Fund Managers

Fund agencies or fund managers are the entities that deal with your funds on your behalf. You need to trust them with your money and trust their decisions related to investments made for you. Therefore, you must approach the one with a considerable amount of experience and a good repo. Make a thorough enquiry, go through the website details, and make ample background checks to gauge the capability of fund managing agency. They should be able to steer clear of the market risks and help you to meet your financial goals.

Losing money in mutual funds is related to all these factors mentioned above. If these are taken care of; the chances of profits grow manifolds.

We at Mfundz are offering absolute consultation on safe and secure mutual funds investments and we help you design your investment portfolio too. Make sure you talk to us before you decide to put your money in financial instruments.

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