A mutual fund owns a set of other investments, such as bonds or stocks, but could be others.
The underlying investments could lose value, thus making the Net Asset Value decline. The fund managers could be taking very high fees, causing the fund to lose value. Of course, the fund could be involved in criminal activity. There are other reasons.
The fund manager makes poor choices in the kinds
of stocks and or bonds he picks for the fund. Most of
the time, if the whole stock market goes down, so will
most all mutual funds. Sometimes a certain sector goes
out of favour. like housing or technology and the fund is
heavely invested in that sector, the fund can lose big time.
Essentially, you want to know why price changes, but are only asking about one direction.
Essentially you want to "know" the "why" of everything, when in reality, you can't possibly know the "why" of anything until after the fact. Even if you did know the "why" in advance, you still wouldn't know how price would react or "know" how to trade it. Is it good news or bad news, or good news is bad news or bad news is good news?
Having knowledge of "how" a car can wreck in every situation does not necessarily prevent a car wreck. There are hundreds of things that could prevent a car wreck, but knowledge about previous car wrecks isn't even comparable. Nor could we list all those ways here in this little space. Instead, what you should be learning is how to drive, how to operate the machine, how to evaluate risk, how fast to go, when to stop, and certainly there are situations to avoid (but you only need to know this after you learn to drive).
Econ 101: In all free markets, price is determined by supply and demand. If there is more selling than buying, price goes down, regardless of who owns it or what kind of stock it is or even what the news is or the "why" or "how."
Focus on the things you can control and forgot those things you cannot. You have no control and cannot trade successfully on the news or the "why" that appears to make price change. You do have control over your risk level, your position size, your entry level, and you can better your probability of success in many ways. But you have absolutely no control over the future or what price does and when.
Price goes down.
The obvious cause of a loss of value is that the fund managers buy stocks that have declined in value but the other - hardly mentioned cause are management fees and expenses. A small fund may have fixed fund manager costs for investment advice, accounting, auditing, and marketing that may amount to a five percent charge every year on the fund assets..see this article about the expense ratio
From Fool.com:
An expense ratio is the total of the following components.
The investment advisory fee or management fee is the money necessary to pay the manager(s) of the mutual fund. On average, this fee is about 0.50% to 1.0% annually of the fund's assets, and is necessary to make sure that the manager of the fund can be very well-dressed at all times and is able to go on good vacations.
Administrative costs are the costs of record keeping, mailings, maintaining a customer service line, etc. These are all necessary costs, though they vary in size from fund to fund. The thriftiest funds can keep these costs below 0.20% of fund assets, while the ones who use engraved paper, colorful graphics, and phone answers with highfalutin' accents might fail to keep administrative costs below 0.40% of fund assets.
Surely the fee that you as a mutual fund investor should be most outraged by is the 12b-1 distribution fee. This fee ranges from 0.25% of a fund's assets all the way up to 1.0% of the fund's assets. This fee is used for marketing, advertising, and distribution services. Yup, that's right. If you're in a fund with a 12b-1 fee, you're paying every year for the fund to run commercials and try to sell itself. Can this in any way really help you? Do you enjoy seeing advertisements of your fund or your fund family on television? Unless you really do, you should probably avoid funds that charge a 12b-1 fee.
I want to know all the ways a mutual fund can lose it 's value?
