Tips to combat risks associated with mutual funds

Risks Associated With Mutual Funds

Though they’re well-diversified, mutual funds aren’t guaranteed no-risk investments. The level of risk, as always, will depend on what your investments are. Therefore, there are a few things you’ll need to know: * Do research among mutual fund companies to help you determine how much they’re making and how those particular companies make their money. * Understand how the economy as a whole is doing, and make sure you understand how the companies and industries could be affected by a bull or bear market. * Research that mutual fund’s past performance. find new investments (and filter out all the bogus information that exists on the internet). However, once you decide which mutual funds you want, you’re going to need a way to purchase them, so you need a broker. This is where a lot of questions arise. “Full-service

broker? Online discount broker? Which one is best?”

By following these tips, one can effectively cushion the impact of mutual fund * Build a portfolio that matches your risk appetite One of the best ways to cushion the most risks associated with mutual funds is by investing in a profile that matches investors’ risk-taking capability. Factors like one’s age, financial standing, risk appetite and financial goals must be weighed in before selecting a specific mutual fund scheme. For instance, individuals with a low-risk appetite and a long-term financial goal will find a balanced portfolio with a profitable mix of both debt and equity * Invest through Systematic Investment Plan Through this investment route, investors will be able to distribute the risk burden significantly. Also, with the help of features like rupee cost averaging and the power of compounding, investors can lower their cost of

investment successfully. This investment route also helps to distribute the risk associated with mutual fund investments over a period and also helps to lower the average cost of investment. Collectively, it helps to combat the impact of entering into an overvalued market. The fact it enables investors to shift from one fund to another helps to consolidate gains and lower associated risks successfully. Allocate investments across asset classes and sectors like debt, cash equivalent, equities, etc. to balance the portfolio’s risk-reward ratio and associated market risks effectively. By factoring in risk appetite, time horizon and financial goals, investors can diversify their portfolio For instance, for meeting short-term goals, investors should put their money into debt schemes for capital protection and assured returns. Alternatively, for long-term goals, investors may find equity mutual funds more proficient because

of its high risk-reward factor.

All investments have some level of risk. Unlike putting your money in the bank, when you invest, you could lose some or all of your money. And when you buy a mutual fund, someone else controls the stocks your money is invested in. Another risk associated with mutual funds is their fees. You may pay a sales charge (load) on the funds you buy. Mutual funds also charge operating fees, which can reduce the value of your portfolio. You may

also pay a redemption fee when you sell shares, an exchange fee if you exchange shares in one fund for shares in another, an account fee if your account falls below a minimum, or a purchase fee when you buy shares. Check Out: What Are Open and Closed Funds?

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What Are The Risks Associated With Multi Cap Mutual Funds

4 What S The Risk Associated With Investing In Mutual Funds

The return of mutual funds depends on several conditions related to underlying investment. Some common types of risk associated with mutual funds are the * Country risk: As your investment will be mostly in Indian security market, it might be affected by changes in political climate. * Credit risk: If you invest is in debt mutual funds, you are exposed to the risk of bond repayment by the issuer. * Interest rate risk: The value of your investment in fixed income generally generay falls when interest rates rise. * Market risk: The value of your investment may decline because of risk that affects the entire market. That’s why you should opt for a long duration systematic investment plan for better risk mitigation and higher returns. It’s best to review the investment plan from time to time and adjust it accordingly.

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