The Buyt Desk
Mutual Fund has been around as an investment option for a long time but was not as popular as it is today. Today, this investment product is well accepted as traditional investment products among investors, such as fixed deposits, gold, silver, etc. Thanks to mutual fund managers who carefully invest money in different equities and ensure you get a good return.
To make SIP mutual funds less risky, the mutual fund managers invest your money in various funds across asset classes, depending on the fund you have chosen. This is how they mitigate the risk of loss. Therefore, even when certain assets do not perform, your portfolio will be the least impacted. However, there are risks involved that you must be aware of to make an informed decision about investing in mutual funds.
Risk Involve With SIP Mutual Fund And SWP
The two major concerns of mutual fund investors are:
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Will this investment fetch me a risk-free return?
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Is the asset management company reliable?
As far as the credibility of the asset management company is concerned, the Securities Exchange Bureau Of India and other regulatory bodies are there to protect your rights. And the for the first concern, there are certain risks, such as:
Equity Or Stock Market Risk – The money you put into equities via a mutual fund is being invested eventually in public traded firms, thus, the risk that the stock market has is obviously there in the mutual fund as well.
Interest Rate Risk – A debt fund has a risk of interest rate. Bonds and stocks are exchanged in a similar manner, and their prices vary. Further, the bond movement and the economy’s interest rate are interlinked and work in inverse. That means as the economy’s interest rate rises, the bond values decrease as they both offer the same interest rate.
Things to Consider When Evaluating Mutual Fund To Avoid Risk
Mutual Funds come with certain risks. To avoid them, you must keep a few points in your mind.
Return – A fund managed by professionals has good back support. Such fund claims to give a minimum return of 12%. It is way higher than the interest rate offered by other financial products.
Factors Of Uncertainty – There are mutual funds present, giving you the option of regular investment of a fixed amount every month (SIP). In case you fail to deposit money in that account for a month or two, it would not affect your account functioning, unlike the recurring deposit or FDs, where missed payment means account closure. Consider that option.
Flexibility Of Surrender – Suppose you need a fund for buying a home or sending your child abroad for further education. If you borrow a loan from the bank, it will charge a whopping interest of up to 12% depending on your banking history. On the other hand, if you have a mutual fund bond that has given you significant gain, surrender the fund to get the needed corpus.
Conclusion – Mutual Funds are exposed to risk as various external factors control it. However, it also gives a return that no other investment products offer. But to reduce loss risk, diversifying investment portfolio is the mantra.
