Quora Answer: What Happens When a Mutual Fund Goes into Liquidation?

The following is my answer to a Quora question: “What happens when a mutual fund goes into liquidation?” 

When a mutual fund goes into liquidation, full closure, the funds assets are sold, and the proceeds distributed to the shareholders of the fund.  From the perspective of the fund, this is a straightforward process, and it happens regularly.  Funds are liquidated when there is heavy redemption, chronic underperformance, a fatal drop in asset value, or simply because it is an investment concept which did not gain traction.  None of this is ever good news for the investor, and not an ideal exit. 

From an investor perspective, this often means significant losses, and in some countries, they can still be taxed on those losses as gains because those losses are now liquid, in their account, even though it is a fraction of their initial holding value.