These days, due to the international environment, A-shares can be said to have fallen again and again. For five consecutive trading days, the SSE Composite Index fell by 6.5 points, with a maximum drop of up to 10%. What will happen if the fund keeps falling and I keep adding to my position?
1. Maximum loss
Funds do require long-term investment and for most investors, fixed income is a better way to invest, but not necessarily profitable in the future, as there are also exceptions like fund liquidation. Fund liquidation is relatively easy to understand and is similar to the delisting of a stock, where we are forced to redeem the fund even if we still hold it. If a fund that insists on adding to its position ends up in liquidation, there is a possibility of an 80% or more loss, and a permanent one at that. When a fund is liquidated, all remaining fund assets will be distributed to fund holders at a discount, so even if you keep adding to your position, you may be forced to redeem it at a loss of more than 80%, a loss that is not possible.
2. Losses and profits are reversed back and forth
There are over 10,000 funds in the market and some of them lose money even when the market is relatively good, or barely maintain the fund's net worth.If you buy such a fund, then adding to your position will end in continuous losses, with the occasional little rise that might get you back, but it will be harder to make a profit.In fact, there are not many such funds in the market. Although we can reduce our holding costs by continuing to add to our positions when the NAV of the fund is falling, if the NAV of the fund stays within a certain range, it will be difficult to make a profit and the amount of loss is increasing, although the loss is not getting bigger, due to the increase in investment.
3.Turn losses into profits
The probability of fund liquidation is relatively small, while the probability of fund "inaction" is slightly greater and the probability of profit is greater, but only if you have enough money to invest and enough patience to wait for the market to reverse. From the current market, it has indeed been falling, but if you have enough money to increase your stake when buying dips, then your holding costs will fall again and again.
There are three possible scenarios for continuous decline and overweight, the worst case is that the fund is liquidated, and the loss can be as high as 80%; The best-case scenario is that after a period of time, the net value of the fund rises and becomes profitable quickly; There is also a situation where the quality of the fund is not good, and the net value of the fund is barely maintained, and the capital can only be barely returned.
