In 2025, mutual funds are still a popular choice for people who want to grow their money over time with good returns. They give you the benefits of diversification, professional management, and access to different types of asset classes. But not all mutual funds give good returns. Some don’t perform well and may even lead to losses.
That’s why it’s important to understand Why Some Mutual Funds Fail in 2025. Knowing the common mistakes made by both investors and fund managers can help you make better decisions.
In this article, we will explain the most common reasons why mutual funds don’t do well and how you can avoid these mistakes.
What Does It Mean When a Mutual Fund Fails?
A mutual fund is said to fail when it doesn’t perform well and loses the trust of investors. Here’s what that means in simple terms:
- It consistently gives lower returns than its benchmarks, which means it is not performing as well as similar investments.
- A lot of investors take out their money.
- It gets merged with another fund or shut down because of poor performance or low assets under management (AUM)
- It does not help investors reach their financial goals over time.
Top Reasons Why Some Mutual Funds Fail in 2025
1. Poor Fund Management
A mutual fund’s success depends a lot on the fund manager’s skills, because everything related to your investment is managed by them. If the fund manager is not experienced or makes bad decisions, the fund may fail and you may lose a lot of money.
What Can Go Wrong?
Choosing the wrong stocks, bad timing when moving money around, or failing to manage risks like market ups and downs can be the top reason for poor fund management, which can lead to failure in mutual fund investments.
How to Avoid?
Before making any kind of investment, check who the fund manager is. See how long they have been managing funds and how their past funds have performed.
2. High Expense Ratios
Every mutual fund charges some annual fee to manage your money. These are called expense ratios. If the fees are too high, your profits become smaller, even if the fund performs well.
Example: If you earn ₹1,000 from your fund, and the fee is high, you might only get ₹900 or even less.
How to Avoid?
Choose funds with low expense ratios always. Direct plans usually cost less than regular ones. Always compare the expense ratio with similar funds before investing.
3. Chasing Past Performance
Many people pick a mutual fund just because it did well last year. But the stock market keeps changing. A good performance in the past doesn’t mean it will do well in the future too.
How to Avoid?
Always look at how the fund has performed over 5 years or 10 years. Check if it gives steady returns in both good and bad times. Don’t just go after recent success.
4. Lack if Diversification
Some mutual funds put most of the money into one sector only like tech or pharma or just a few stocks. If that sector or company performs badly, the entire fund suffers.
How to Avoid?
Pick funds that have diversification, meaning they invest in many sectors and stocks. This spreads the risk and makes your money safer and if one area fails, there should be others doing well.
5. Ignoring Market Conditions
Sometimes, markets go up which is called the bull market and sometimes they go down, which is called bear market. Some mutual funds don’t change their plan even when the market changes a lot and that can lead to big losses. A fund that invests only in small companies might suffer when the economy is weak.
How to Avoid?
Choose mutual funds that adjust their plan based on the market. Check how the fund has performed during both good and bad market times.
6. Unrealistic Investor Expectations
Some people expect mutual funds to double their money quickly. When that doesn’t happen, they get disappointed, panic, and take the money out early and this can lead to loss. These are not some “get-rich-quickly” scheme. They take time to grow your money.
How to Avoid?
Set clear, long-term goals like buying a house, saving for retirement, or saving for your children’s education. Be patient and don’t panic during short-term losses.
7. Poor Asset Allocation
Good mutual funds invest in a mix of things, like equity (stocks), debt (bonds), and sometimes gold or other assets. If this mix is wrong, the fund may become too risky or low returns. For example, a fund that only invests in stocks may crash during a market fall.
How to Avoid?
Look for funds with proper asset allocation. You can also choose hybrid funds, which balance between equity and debt at the same time, depending on the market behavior.
8. Low Asset Under Management (AUM)
AUM means the total money invested in a mutual fund. If a fund has very low AUM, it is not very stable. If too many people withdraw money at once, the fund might be forced to sell investments quickly, which leads to losses.
How to Avoid?
Always pick funds with higher AUM, which is usually good for more than ₹500 crore. This means many investors trust the fund, and it is more stable.
How to Avoid Investing in Failing Mutual Funds
- Do your research – Before investing your money in mutual funds, read the fund’s factsheet, its terms and conditions, check its portfolio, and understand its risk level.
- Monitor performance regularly – Don’t just invest and forget about your money. Regularly review your mutual funds every 6 months to see how they are doing.
- Use SIPs – A systematic Investment Plan helps you invest small amounts regularly. It also balances out the ups and downs of the market.
- Stick to your goals – Don’t switch funds too often. Stay with your investment plan unless the fund keeps performing badly for a long time.
- Seek expert advice – If you are not sure which mutual fund to choose for investment, talk to a financial advisor for the right guidance.
Conclusion
While mutual funds are a good way to build wealth, not all of them give good returns.
To improve your chances of success, avoid common mistakes like choosing a fund just because they performed well in the past, ignoring fees, or putting all your money in one type of fund only.
In 2025, the market ups and downs and global changes, it’s even more important to stay informed and stick to a smart investment plan.
FAQs
What is the biggest reason mutual funds fail?
The main reason mutual funds fail is poor fund management and not adjusting the strategy when the market changes. That’s why choosing the right fund manager is very important.
Can a mutual fund go to zero?
It’s very rare for a mutual fund to go to zero unless all the companies it invested in becomes worthless. But it can give negative returns in the short term.
How do I know if my mutual fund is underperforming?
To check if your mutual fund is underperforming, compare its returns with its benchmark and the category average for the last 1,3, and 5 years. If it’s worse again and again, then you might need to switch to a better fund.
Is it safe to invest in mutual funds in 2025?
Yes, mutual funds are safe to invest in 2025 as they are checked and controlled by SEBI. but like all investments, there is some risk.
What should I do if my mutual fund is failing?
Don’t panic! First, see if the poor performance is just for a short time or a long-term problem. If your mutual fund keeps doing badly, you can redeem it or switch to a better one.