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Summary: A reader asks whether a mutual fund investment can fall to zero. Dhirendra Kumar explains that while markets can be brutal, as seen in the 2002 tech crash, the structural safeguards of mutual funds make a complete wipeout virtually impossible.
Is it possible for the investment in an equity mutual fund scheme to drop to zero? – Mary
Your mutual fund investment has crashed to zero.
Sounds terrifying, but could it actually happen? The short answer is no, and the reason lies not in market behaviour, but in how mutual funds are built.
When you give your money to a fund manager, they invest it in a diversified portfolio of at least 15-20 stocks, which they are required to do by design, since SEBI regulations cap how much a fund can hold in any single stock or bond. So for your investment to hit zero, every single stock in that portfolio would have to become worthless simultaneously.
While that remains highly unlikely, things can certainly get very nasty. It happened in 2002, when technology stocks were soaring, and fund companies rushed to launch technology funds. The first such fund doubled in year one and doubled again in year two, pulling in a wave of excited investors. Then, many more fund companies launched their own technology funds, raising big money from investors dazzled by that past performance. What followed was a brutal 70 per cent crash; Rs 100 became Rs 30, and it took seven long years to recover. Infosys was no different; someone who invested in it in 2001 made no money for the next seven to eight years. So yes, such damage can happen, but a fall to zero cannot.
That kind of total wipeout would only be possible if someone took your money out of the bank, stuffed it in a gunny bag, and walked away. That simply cannot happen with a mutual fund. The structure, with its custodians, regulations and oversight, makes it impossible. There are real risks in the market, but there is no risk in the design. And that is why a zero is nothing to fear.
This article was originally published on December 09, 2019, and last updated on May 08, 2026.
Disclaimer: This content is for information only and should not be considered investment advice or a recommendation.
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