Are There Risks Involved When Investing in Mutual Funds

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Are you thinking of whether to invest in mutual funds or not? Do you find it to be a risky affair? There are a lot of factors that create a lack of trust in the mutual funds on the minds of the investors. The main thing everyone wants to know is whether or not it is sensible to invest in mutual funds. We Indians are very choosy when it comes to investing our hard-earned money. We will look only to put the money as an investment in options that guarantee the safety and security of the money. We do not want to lose the capital investment and would also look to get fixed returns for that investment. The Indians believe more on fixed and recurring deposits than the other forms of investment. 

Are Mutual Funds Safe?

There is no guarantee that a mutual fund is safe. It is a place where you could gain money and also there are chances of losing some or the whole investment. The kind of risk involved in mutual funds depends on what you are investing in. For example, the risks of the stock market are more than that of the bonds. If you are looking at the safety of your investments, then it has to be categorized into two:

  • Safety with regards to the company or the institution running away with your invested money.
  • Safety with regards to providing you with the protection of your capital funds and also ensure guaranteed returns.

Hence, no investment is free from risks and you need to choose only the best performing mutual funds to get the best value for your invested money. The following are the risks that could cause some problems for the performance of your mutual fund’s investment.

Market Risk

There are certain situations when the rates of and the revenue generated by the securities will come down based on unforeseen events that are also related to the company. The market risk factors include economic conditions, instability of the economy globally, fluctuation in the interest rates, currency fluctuations, etc.

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Basic of Mutual funds

Interest Rate Risk

If there is a change in the interest rates, then it will directly affect the investment’s value. If there is a rise in the rate of interest, then held securities will have reduced prices than the investment made.

Credit Risk

This is a type of risk that rises when the issuer is not able to meet the said plans in full or if the issuer does not give you the internet on time or the repayment of the capital money at the allotted times.

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