The profit and loss in mutual funds depend on the performance of stock and financial market. 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.
So, it’s not that all of your mutual funds would fail. However, the economy of the country can go up and down. The profit and loss in mutual funds depend on various factors such as market volatility, economic growth, stock performance etc.
It is also possible that a manager of a mutual fund could be dishonest and get caught financial scam. In this case, investors would quickly sale the mutual fund that may decrease the value of share price. In other cases, a mutual fund could simply be mismanaged and may run out of money. In such cases, the value of your shares would decrease.
Since mutual funds are managed by fund managers, it is possible that they make bad investment choices. If your fund manager puts a lot of money into stocks that fail, you could lose a large percentage of your investment. However, the decrease in value of your mutual fund could be temporary, unless there’s some overwhelming financial news that makes you think your fund is in trouble.
Up and down in the value of mutual funds is normal in short term. Most of the financial planners suggest that investment in mutual funds should done with a time frame of minimum of five years.
Mutual funds are great for long term financial goals and should be done for a minimum time frame of five years.
Investors should not worry about short-term volatility.
If your investment is giving negative returns in the near term don't panic, instead keep investing as you can accumulate more units at the same price. In long run, this will help you in generate more wealth.
- How do mutual funds work?
The fund manager you hire will ensure to put in your money in different investment options like stocks, bonds, and commodities to ensure lower risk and higher return percentage. - On what parameters do the hike and dip of mutual funds depend?
Mutual funds are subject to market risk. This implies that the performance of your mutual funds will be dependent on market volatility, stocks’ profit/loss, economic growth, and inexperienced fund managers. - What is the ideal recommendation for a time-frame with respect to mutual funds?
Typically, you should ensure to invest in mutual funds with a time horizon of a minimum of 5 years to get superior returns. In short-term investments, you can experience a drastic fluctuation in the mutual funds’ value. - Should I worry or take back my investment when getting negative returns from Mutual funds?
No. You shouldn’t do that. If getting negative returns, the ideal thing to do is to keep investing so as to accrue more units at the same price. This will ensure you earn more wealth in the future.
