Mutual fund investment: major risk associated with it – CNBC TV18

Mutual funds are a popular choice for investors as they usually provide the advantages of professional management and strength along with diversification. In a mutual fund, people invest their money in securities such as stock, bonds and short -term loans. They are popular investment vehicles that pool money from many investors and invest in a variety of asset classes, including equity, bonds and other equipment. However, mutual funds, like any other investment, are subject to some risks.

Major risk associated with mutual funds:

market risk: Often referred to as a systematic risk, it can cause damage to any investor as a result of market underperformance. Many things affect the market, such as natural disasters, inflation, recession, political upheaval and others. During these scenarios, only one thing that an investor can do can wait for everything to happen.

liquidity risk: This refers to the difficulty of redeeming any investment without losing the value of the risk instrument. This can also happen when an investor is unable to detect a buyer for safety. The lock-in period of mutual funds, such as ELSS, may have a risk risk while nothing can be done during the lock-in period. In another scenario, the exchange-traded funds (ETFs) may face liquidity risk. The easiest approach to avoid this is to maintain a diverse portfolio and carefully choose the fund.

credit exposure: This occurs when the issuer of the plan is unable to pay the agreeable-onion rate. On these criteria, investment agencies are usually rated by rating agencies. So, a person can see that a good rating company will pay less, and vice versa.

Concentration Risk: It is often focused on only one thing. In any scheme, focusing a large part of one’s investment is never an intelligent idea. If you are lucky, you will earn a lot of money, but will be pronounced several times as disadvantages. The best way to reduce this risk is to diversify your investments.

interest rate risk: This risk usually faces debt mutual funds. Interest rates are ups and downs based on credit for lenders and demand from borrowers, who are opposite to each other. This means that the increase in interest rates during investment period can reduce the price of securities.