Oct 10, 2017 4 min read

Mutual Fund Investments are Subjected to Market Risks! Do you Care?

Disclaimers always need an eagle's eye if you want to stay safe in your investment journey.
We often hear the jargon at the end of every advertisement of the mutual fund on TV which says, “Mutual Fund Investments Are Subjected To Market Risks. Read all scheme related documents carefully.” What impact does it make on your decisions of investing? None!

Generally, we hear it, listen to it, hardly pay attention to it, and at the end forget it, that’s what the life of a disclaimer. It does not make any difference on the buying behavior of the customer. Similarly, this rapidly said line also doesn’t have much impact on the investing behavior of the potential investors. The one who is determined toward the goal achievement never cares about the ways but keeps chasing the steps one-by-one to reach the destination. However, the line mentioned above has a precise meaning which points to the inherent risk of mutual fund investments. Mostly every investor knows that how mutual fund investments are risky, and how they can fluctuate in terms of returns.

The beginners or the new investors might be unaware of the fact that how MFs are risky and how they may eat up your hard earned money. However, it is important to know the inherent risks lie in the investments in mutual funds. Without knowing the compatibility of the scheme as per the investment profile, one may end up deploying the hard-earned money into the wrong fund. That is why, after every MF advertisement on TV, radio, newspaper, etc., it is said that mutual fund investments are subjected to market risks. One must check the various factors before getting indulged into any investment.

Its a Matter of your Hard-Earned Money

No one in this world cares about the problems of the person standing next in the queue. And when it comes to the financial issues, hardly people come forward to help out. Similarly, your financial stability is your responsibility. It is only you who have to look after your and your family’s financial well-being. Therefore, you cannot just plunge into investments without knowing about the underlying risk factors properly. You must have a look at the detailed information about the scheme in which you are going to invest and check the compatibility as per your investment profile. In case you do not have a good hand on the financial knowledge, then you can also consult your financial advisor for this concern.

Let’s Know the Various Inherent Risks in Mutual Fund Investment:

No doubt mutual funds are among the safest investment options as they help to scatter the entire risk of the investment making it less effective. Then what? Does the paragraph which is written above are wrong? No! Both the lines are correct. However, mutual funds are the safest options of wealth-creation, it doesn’t mean that they come with zero risks. There are some underlying risks of mutual fund investments which cannot be eliminated, which include:

  • Market Risk : The jargon which we were talking about in the opening of this blog that ‘Mutual Fund Investments are Subjected to Market Risks’ stands true here. The market risk! All investments depend on the volatility of the market when it goes up the value of capital grows, and the investor faces loss during downmarket scenarios. Therefore, the market risk is inherent in all types of investments. Thus, mutual fund investment are also not free from this uncertainty. However, the investors of MF get the benefit that they face a minimum risk because of diversification.
  • Interest Rate Risk : As the debt mutual funds are inversely related to the interest rate, they always face the risk of rising interest rate in the economy. In case of falling interest rate, the debt mutual funds earn higher returns for the investors. But, the contrary is the case when the interest rate goes up in the economy.
  • Inflation Risk : Inflation means the gradual increase in the prices of the products and services, at the same time the decrease in the value of products and services. Therefore, mutual fund investments are also not free from the inflationary risk. Rising inflation in the future may lower down the actual value of your returns earned from your investment in the future.

Henceforth, the facts are always meant to be accepted, and no one can change them. The strategies are intended to be made, so keep weaving the best one. Moreover, to the some extent, the fund houses are solving your problems by providing various modes of investing like SIP and Lumpsum. And if you want to add up more convenience in your investment process, you can get associated with MySIPonline and start your hassle-free online investment journey toward financial well-being.