Yes, there is a possibility of losing money in a mutual fund. The basics of a mutual fund is that you have a mutual fund manager: he or she is in charge of the fund; he selects the stocks, he may trade the fund; he may select groups of stocks to invest in, and that makes up the mutual fund. Mutual funds are market instruments. They invest in stocks, bonds, commodities, etc. All of these can lose value, and mutual funds can also lose value.

The amount depends on many factors: type of fund, nature of market decline, the cash position of the fund prior to the decline, time period, etc. You don’t have to panic every time your mutual fund goes down in value unless there’s some overwhelming financial news that makes you think your fund is in trouble. You must realize that any fund can go down in value temporarily.

You also tend to lose money faster if you get impatient and panicky and get out too quickly. The correct way of investing is to invest for the long term. If money is invested in stocks through mutual funds for the fairly long term – 10-15 years and more, the possibility of a loss becomes very minuscule.