Can funds actually go bust?

Chippy99

I have quite a lot of money invested in various funds held in an ISA. Generally they are performing well, but one - Jupiter India - is stinking the place out, being circa 17% down and putting me thousands of pounds in the red on my investment.

Since I am looking at this as a long term investment (10 years+) I am not overly concerned - just ****ed off. I could even be persuaded to buy more since the price has fallen so sharply and long term India growth forecasts remain strong.

HOWEVER. is it possible for funds like this to actually go bust and for me to lose all my money? I can bear short term ups and downs, but were I to lose my entire investment, that would be a disaster.

Thanks for any advice / comment?

eskbanker

Sounds like you may have invested beyond your risk tolerance - I'd refer you to another recent thread about this fund and in particular the words of dunstonh at https://forums.moneysavingexpert.com/discussion/comment/74846599#Comment_74846599:

dunstonh wrote: »

Jupiter India is an extremely high risk, highly volatile fund with 90% loss potential within 12 months.

You dont just have a volatile economy with high levels of fraud. You also have a volatile currency. its the sort of fund you dont exceed a few percent on as part of a wider portfolio.

However, I am looking at the recent drop and its certainly not freefall territory yet and its just undoing 2016/17 gains. I do wonder if the reference to freefall on a peak to trough of -26% suggests the OP is not aware of the extreme loss potential of this fund

Edit: OP, for someone who said in a post several years ago that "I am a risk averse person", you have a strange way of showing it! How did you end up with a fund like this in your portfolio if you consider(ed) yourself risk-averse?

Linton

An OEIC/UT type fund's value is simply the value of the assets it holds. So a normal fund investing directly in dozens, if not hundreds, of shares quoted on a significant stock exchange would only drop to zero if all those shares dropped to virtually nothing or at least so low that the fund couldnt pay the manager. Theoretically possible, but extremely unlikely. If it did happen we would probably be talking about a catastrophic global economic collapse when the value of your Jupiter India would be the least of your problems.


PS: Just checked the actual fall - according to HL's graphs it's about 30% since the start of the year. A bit painful possibly but hardly way outside what could be expected from an EM fund. An experienced investor would surely not more than 5-10% of their portfolio as an absolute maximum in such a fund.



So as has been said you are showing the symptoms of investing outside your risk tolerance.

Malthusian

Linton wrote: »

An OEIC/UT type fund's value is simply the value of the assets it holds. So a normal fund investing directly in dozens, if not hundreds, of shares quoted on a significant stock exchange would only drop to zero if all those shares dropped to virtually nothing or at least so low that the fund couldnt pay the manager.

Fund manager charges are a percentage. The fund wouldn't drop to zero as a consequence of management charges, it would be wound up once it got to the point that the fund manager's percentage wasn't enough to feed their families. The minimal proceeds would be returned to investors either as cash or by way of merger with another fund.

There is only one way I can think of for a fund to be worth nothing even though the shares it holds are in theory worth a tiny amount, and that would be if the cost of selling the shares would exceed the proceeds. But this would be because the fund couldn't pay its brokers or the stock exchange, not the manager.

aroominyork

Linton wrote: »

An OEIC/UT type fund's value is simply the value of the assets it holds. So a normal fund investing directly in dozens, if not hundreds, of shares quoted on a significant stock exchange would only drop to zero if all those shares dropped to virtually nothing or at least so low that the fund couldnt pay the manager. Theoretically possible, but extremely unlikely. If it did happen we would probably be talking about a catastrophic global economic collapse when the value of your Jupiter India would be the least of your problems.


PS: Just checked the actual fall - according to HL's graphs it's about 30% since the start of the year. A bit painful possibly but hardly way outside what could be expected from an EM fund. An experienced investor would surely not more than 5-10% of their portfolio as an absolute maximum in such a fund.

So as has been said you are showing the symptoms of investing outside your risk tolerance.

For relatively inexperienced investors (which I count myself; I do not know about the OP) these kind of falls in single funds are quite useful as they let us assess our risk tolerance in bite size chunks, rather than waiting to experience all global markets falling together with say 30% wiped off. When starting to DIY invest after a long bull run, it's easy to convince yourself your risk tolerance is higher than it really is; having a single fund take a hit is a good way to assess whether your overall portfolio is positioned correctly.

I do not hold Jupiter India but I do hold India Capital Growth which is very similar; I am now wondering why I hold such a niche fund and I do not have a good enough answer, so as and when (and if...) it recovers most of its losses I will be selling it.

Blackbeard_of_Perranporth

The value of investments can go up and down, they may rocket or plummet. Your question is do I cut and run or do I hold out.


The answer is, you have lost money, how much risk are you prepared to take!


(Our investments increase at about £2,000 a month over the last six years, though some months this may be more, or may be less! I do not chop and change, nor equalise my funds, but they run on average very close to each other) Long term over this time they have tripled in value!

Audaxer

Chippy99 wrote: »

Since I am looking at this as a long term investment (10 years+) I am not overly concerned - just ****ed off. I could even be persuaded to buy more since the price has fallen so sharply and long term India growth forecasts remain strong.

It's too volatile a fund for me, but if you are satisfied that the long term future of the fund is good, maybe you should see it as an opportunity to buy more of it by rebalancing your portfolio to get that fund back up to it's original percentage of your portfolio.

Alexland

Linton wrote: »

So as has been said you are showing the symptoms of investing outside your risk tolerance.

Yes the OP is now in a very difficult position. If they sell they are making the classic behavioral error of buying high and selling low. If they buy more they risk multiplying their losses. If they hold it may keep going down anyway.

It reminds me of the classic Peter Lynch quote “Know what you own, and know why you own it” which to me means if you understand the intrinsic value of the underlying fund holdings and what progress you were expecting them to make you can better assess if the fund is only suffering a temporary price drop.

Alex

Prism

Alexland wrote: »

It reminds me of the classic Peter Lynch quote “Know what you own, and know why you own it” which to me means if you understand the intrinsic value of the underlying fund holdings and what progress you were expecting them to make you can better assess if the fund is only suffering a temporary price drop.

Absolutely.

As an attempt to explain some of the drop, firstly over the last 12 months the pound is up 9.5% on the Rupee so thats a pretty big hit to performance.

Secondly, most indian debt is in dollars and the dollar is up 12.5% over the Rupee so India's debt just got much more expensive. This causes problems with many of Jupiter India's financial holdings

Several of Jupiter India's top holdings are in downstream oil companies which do well when the oil prices are lower.. but they are up 47% over the year - and also priced in dollars.

I have a small allocation to Jupiter India and don't see any permanent worries with it as it stands

Alexland

Prism wrote: »

Absolutely.

Another of my favorite Lynch quotes on market timing is "far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in the corrections themselves".

Alex

bostonerimus

There are going to be highs and lows if you own volatile niche funds and if you haven't thought about how you'll react to those highs and lows then you shouldn't really own them. Of course you can say the same about any fund, but for funds like Jupiter India you can shout it or write it in ALL CAPS. You can either use "momentum" to dump the poorly performing fund or "rebalance" and sell some winners to buy some more and you should have a portfolio that let's you do either easily.....or you could do nothing.

The OP is asking what to do with a large loss, but just as important is what you should do with large gains.