What are the indicators of risk in a Mutual Fund Scheme

Ans: Hi Nitishka , Risk Can be defined as your response to tolerance level. So its subjective and what's risky for me many not be risky for you. So in Mutual Funds specially wherever you will see equity as a component, you will see that much part of the portfolio as RED or GREEN depending on equity market performance. But more te equity in the portfolio more is the possibility of good gains and vice versa. So All in all i can say when you are driving your car on the road you drive it with safety and not with the intention of meeting with an accident. So in mutual funds too risk is there in the form of equity to create possibility of better returns and fund house takes care as to not spoil the party by choosing wrong equity as they have their own set of rules to assess the stock selection.

Ans: It all depends on which category of mutual fund you invest and that depends on your objectives and horizon.

Ans: Mutual funds are investment vehicles that pool money from multiple investors to invest in a diversified portfolio of securities such as stocks, bonds, or other assets. Here's how mutual funds help manage risk:
1. Diversification: Mutual funds invest in a diversified portfolio of securities across different asset classes, sectors, industries, and geographic regions. Diversification helps spread risk and reduces the impact of adverse events affecting a single security or sector on the overall portfolio.
2. Professional Management: Mutual funds are managed by experienced fund managers who conduct thorough research, analysis, and investment selection based on market conditions, economic outlook, and investment objectives. Fund managers make informed decisions to optimize returns while managing risks effectively.
3. Risk Assessment and Management: Fund managers assess various types of risks such as market risk, credit risk, liquidity risk, and interest rate risk associated with the securities in the portfolio. They employ risk management techniques such as asset allocation, security selection, and hedging strategies to mitigate risks and protect investors' capital.
4. Asset Allocation: Mutual funds allocate investments across different asset classes such as equities, fixed income securities, and cash equivalents based on the fund's investment objective and risk profile. Asset allocation helps balance risk and return potential, depending on investors' goals, time horizon, and risk tolerance.
5. Regulatory Oversight: Mutual funds are regulated by regulatory authorities such as the Securities and Exchange Board of India (SEBI) in India. Regulatory oversight ensures that mutual funds adhere to regulatory guidelines, disclose relevant information to investors, and operate in a transparent and accountable manner, enhancing investor protection and confidence.
6. Transparency and Liquidity: Mutual funds provide transparency regarding their portfolio holdings, investment strategy, and performance through regular disclosures and reports. Additionally, mutual funds offer liquidity, allowing investors to buy or sell fund units at prevailing net asset values (NAVs) based on the fund's liquidity terms and redemption process.
By offering diversification, professional management, risk assessment, regulatory oversight, and transparency, mutual funds help investors manage risk effectively while seeking to achieve their financial goals over the long term.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner
www.holisticinvestment.in

Ans: Equity Mutual funds invest in stocks hence it has a price volatility risk. There could be a capital loss also, hence invest according to your risk appetite, investment objectives and investment horizons.

Ans: Aman, for medium to high-risk investments like mutual funds, it’s good to monitor their performance regularly. However, for low-risk investments, you don't need to keep a constant watch but reviewing them monthly is wise. For more detailed guidance, get in touch with a Certified Financial Planner.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in