Mutual funds can lose money too. Representative image
‘Sahi hai’? Why mutual funds may not always be safe and the right investment for you
Mutual fund folios have surged, but SEBI data shows a sharp rise in schemes reporting losses in 2025-26. So, how safe are they really?
The mutual fund industry has grown rapidly, with investor folios rising from 10.55 crore in July 2021 to 28.09 crore in July 2026, nearly tripling in five years. Assets under management reached Rs 85.76 lakh crore by July 2026.
The growth comes after years of messaging around mutual funds as an accessible way to participate in the stock market. But growing investor participation does not guarantee returns.
That raises a basic question: Are mutual funds actually safe, and do they always make money? The answer depends on the fund, the market conditions, and the investor’s risk tolerance.
Losses rise
SEBI’s Annual Report for 2025-26 highlights how market conditions affected mutual fund performance during the year. The number of schemes reporting losses rose sharply, with the data cited in the report showing losses across different ranges.
Also read: Confused between multi-cap, flexi-cap funds? Here’s what you should do
More than 90 schemes recorded losses of over 10 per cent, while around 150 schemes lost between 5 and 10 per cent. Nearly 500 schemes recorded smaller losses in the 0 to 5 per cent range.
The other side of the picture was also notable. Fewer than 200 schemes delivered returns above 10 per cent, compared with more than 300 the previous year. Schemes delivering 5 to 10 per cent returns also fell from 852 to 539.
Market risks
The takeaway is straightforward: Mutual funds do not guarantee returns. A rise in the number of investors or the industry’s assets does not automatically translate into better returns for every investor.
Market volatility remains a key factor. Stock markets can go through strong rallies as well as sharp declines, affecting the value of equity-oriented mutual fund investments.
Also read: SEBI proposes new MF-PMS framework: What does it mean for investors, portfolio managers?
SEBI’s assessment of 2025-26 points to several factors behind the difficult market environment, including slower domestic growth, persistent inflation, geopolitical tensions, conflicts in West Asia and Ukraine, and a slowdown in the US.
Key is balance
Mutual funds can carry more risk than fixed-income options such as fixed deposits and other relatively stable instruments. But diversification can reduce the impact if an individual company performs poorly as compared with investing directly in a single stock.
A mutual fund typically spreads investments across a basket of securities. That means the performance of one company does not necessarily determine the performance of the entire portfolio.
However, diversification does not eliminate market risk. During a broad market decline, several or even many holdings can fall at the same time.
Know your risk appetite
For investors seeking potentially higher returns than fixed-income products, mutual funds can offer exposure to the market without requiring them to select individual stocks themselves. But higher potential returns also come with the possibility of losses.
Also read: What are Specialised Investment Funds? How to choose between SIF and MF?
The important point is not to select a mutual fund simply because it performed well in the previous year. Past performance can provide context, but it does not guarantee future returns.
Before putting in their money, investors need to consider their financial goals, risk tolerance, investment horizon, and how a particular fund fits into their existing portfolio.
The real question, therefore, is not just how much you can earn from a mutual fund. It is also how much loss you can realistically afford to take.
(The content above is for information only, and does not constitute investment advice.)
