Can Mutual Funds Lose 100% of their value?

Question

If I am invested say in two vanguard mutual funds and lets say vandguard goes bankrupt such as bear Sterns does my fund lose all it's value? I know my funds in vanguard are invested in other companies, health care, blue chips etc. However if it goes bust does vanguard sell the funds and pay off their creditors then I'm left with nothing? Please explain how bankruptcy works with mutual funds?

Answer 1

You are not invested in Vanguard.  If you own mutual funds you are invested in the companies held by the fund.

Answer 2

Reputable brokers and funds have SIPC insurance.  It's like FDIC insurance on your bank account.  SIPC covers up to $500,000 of securities held by your broker/dealer.  It doesn't cover losses due to diminishing value of the securities.  It protects you from losses if your broker/dealer goes bankrupt.

http://www.investopedia.com/terms/s/sipc...

Answer 3

You have nothing to worry about.  Since you are in a mutual fund that invests in stock of companies you are protected from major losses and major gains.   Vanguard enjoys a strong reputation.  I would buy a Morningstar publication to describe the qualities of the strongest mutual funds.  I am not aware of a mutual fund bankruptcy and have been around the stock market for 30 years.

Answer 4

Vanguard is unique among mutual fund companies as their funds are owned by each and every shareholder.  Vanguard is just employed by the funds to handle the paperwork.  If their CFO runs off to Rio with Vanguard's bank account and they go belly up, first Vanguard has insurance to cover any investor loss due to fraud (not loss of fund value because of bad stock picks).  2nd, the funds would be "sold" to another fund company.  If another fund company, which owns their funds, went bankrupt  (Remember the Strong family of funds) the funds would be taken over by another firm.

To answer your main question.  Yes, mutual funds can lose 100% of their value if every company the fund invest in goes bankrupt.  There have been some funds with really lousy stock picks, but none where every pick has gone belly up.