A well establish mutual fund company normally has a large invesment sum of money to invest with. Sometimes one mutual fund company alone can have more than all the money traded in the stock market one day. That also means, a fund manager can put ALL money into a crashing market and still make the market trends up that day. Like wise, when a fund manager pull out all the money, the market literrally collapse into Nothing left.
So when the goverment grant the license to the mutual fund company, certain limits are imposed too. In generally there is a limit a fund manager can dispose off their stocks in a day.
So, let's say the limit is $100,000 per day. And the fund manager has $1 million to dispose off. It will take 10 days or 2 weeks before that fund manager is totally out of the situation they are trying to stay away from.
But nothing happen overnight ! Whatever the problem is, a good fund manager should have insider news and know things well in advance ! ( well, if not insider news then through other methods, they should have known ... ) That is true, they do know in advance but ...
Your fund manager promised you something ( prospectus ), and that something is usually achieved by putting your money into the market. So a fund manager cann't simply take out all your money just because he thinks he knows the future. Says if a fund manager does take out all your money when he predicts a drop. But then it goes up indeed and you see your fund doesn't perform the up trend, you must have more questions, don't you ?
If all a fund manager does is to put your money into FD ( very safe) and then charges you 5% service charge, does that sound appealing to you ?
So a Fund Manager must put maximum money into the market as much as he can at any one time.
All these factors combined, these are what you can expect when you invest into a mutual fund :
1. Best Fund Manager : the Fund outperform the market when it goes up and lose less when the market is down.
2. Normal Fund Manager : the Fund goes up together with the market up trend and lose less in down trend.
3. Bad Fund Manager : A fund that does not follow market trends or no activity.