Mutual Fund Investments are Subject to Market Risks!? Chalo Risk Samajhte hai!

You know what worries us most? The things that we don’t know much about! For most of us, mutual funds risks also fall under this category of unknowns, right? But, why worry about something if you can understand it better and use it to your advantage?

Let’s dissect risks involved with mutual fund investments.

Risks linked to equity mutual funds

Price Fluctuation risk

Equity funds invest in stock and related instruments of companies listed on stock exchanges. The NAV of equity funds may go up and down in line with price fluctuations of the stocks it is invested in. The stock prices may change due to many factors like investor sentiments, RBI policies, regional, national and global factors, geopolitical events, and more.

Sector Specific / Event specific risk

The NAV of mutual fund may fall if a particular sector or company in its portfolio is not performing well. For example, if IT sector is not doing well, the mutual fund that is invested in this sector may see a fall in its NAV.

Liquidity Risk

Mutual funds such as ELSS have liquidity constraints as they have a strict lock in period of 3 years. Although rare, in case of equity mutual funds, dearth of buyers may pose a problem in redeeming investments when the investors want to.

Fund Manager’s Risk

The performance of a mutual fund is largely based on the experience, expertise and investment strategy adopted by the manager. Lack of any of these factors may impact the scheme’s results.

Risks linked to debt mutual funds

Interest rate fluctuation risk

The market value of the debt fund investment fluctuates with interest rate changes. If the interest rate of the debt instrument rises, the bond price tends to go down, and the NAV of your debt fund will also decrease, and vice versa.

Credit Risk

If the security issuer defaults in paying interest or principal amount, the NAV of the debt fund will fall to the extent of the loss incurred.

Spread Risk

Credit spread or yield spread is the difference between the returns of two debt instruments with the same maturity date. Credit spreads may change due to market fluctuations. If the credit spread widens, the value of such securities falls, and vice versa.

How to factor in risk associated with your investments?

Although there are risks associated with mutual fund investments, you can first acquaint yourself with them and check if your risk tolerance matches with that of their chosen schemes.

To check your risk profile or how much risk you should and want to take, simply use a Risk Profiler. You can access one right here - /risk

Now, to know the risk level of your chosen mutual fund scheme, simple check for the riskometer.

So remember: to assess your risk, use the risk profiler and to check the risk associated with a mutual fund scheme, check the riskometer!

Now, all you need to do select mutual fund schemes that align with your risk profile. Bear in mind that the riskometer and risk profiler factor in most risks mentioned but not all of them. Various risks can also be mitigated through SIP, diversification, and investing over a longer horizon.

It's only when you understand risk that you can make smart investments!

*This material is created to explain basic financial / investment related concepts to investors. Mutual Fund does not provide guaranteed returns. Investors are advised to seek professional advice from financial, tax and legal advisor before investing.

This document represents the views of Axis Asset Management Co. Ltd. and must not be taken as the basis for an investment decision. Neither Axis Mutual Fund, Axis Mutual Fund Trustee Limited nor Axis Asset Management Company Limited, its Directors or associates shall be liable for any damages including lost revenue or lost profits that may arise from the use of the information contained herein. No representation or warranty is made as to the accuracy, completeness or fairness of the information and opinions contained herein. The material is prepared for general communication and should not be treated as research report. The data used in this material is obtained by Axis AMC from the sources which it considers reliable.

While utmost care has been exercised while preparing this document, Axis AMC does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Investors are requested to consult their financial, tax and other advisors before taking any investment decision(s). The AMC reserves the right to make modifications and alterations to this statement as may be required from time to time.

The list presented is not exhaustive and there could be many other risk factors that may exist.

Statutory Disclaimer: Axis Mutual Fund has been established as a Trust under the Indian Trusts Act, 1882, sponsored by Axis Bank Ltd. (liability restricted to Rs. 1 Lakh). Trustee: Axis Mutual Fund Trustee Ltd. Investment Manager: Axis Asset Management Co. Ltd. (the AMC) Risk Factors: Axis Bank Limited is not liable or responsible for any loss or shortfall resulting from the operation of the scheme.

Mutual fund investments are subject to market risks, read all scheme related documents carefully.