Are there inherent risks when investing in mutual funds?
Yes, mutual funds—though professionally managed and diversified—do carry inherent risks. These funds invest in different asset classes such as stocks, bonds, or short-term money market instruments, all of which are subject to market dynamics.
The value of a mutual fund’s portfolio can fluctuate due to interest rate changes, market volatility, credit quality, economic events, or sector performance. The overall risk exposure depends on the fund’s category—equity funds tend to have higher risk, while debt and liquid funds generally pose lower risk.
Key types of risks in mutual funds
- Market risk: Caused by broad market movements affecting all assets
- Credit risk: Possibility of default by bond issuers in debt funds
- Interest rate risk: Value of debt instruments may decline if interest rates rise
- Liquidity risk: Difficulty in redeeming investments due to thin market
- Concentration risk: Higher volatility from a concentrated portfolio (e.g., sectoral funds)
What if...
| Scenario | Explanation |
|---|
| You are worried about capital loss | Choose low-risk funds like liquid or short-term debt schemes. |
| Markets are volatile | Diversified or balanced funds can reduce exposure to sharp movements. |
| You want predictable returns | Consider debt funds or fixed-income hybrid funds with lower volatility. |
| You're new to investing | Start with conservative or SIP-based strategies to manage risk. |
Always match a mutual fund’s risk profile with your financial goals, investment horizon, and risk tolerance. Review the scheme’s riskometer before investing.
Last updated: 16 Jun 2025
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