Financial literacy and more
Defining and understanding the risk element is important when it comes to mutual funds.
The basic risk in a mutual fund is that the investment might not perform as expected.
In an equity fund this could mean that there is a capital loss.
In a debt fund it could be that there is a lower return than what was expected.
Investors should understand that this means that lower returns than normal or even loss of capital.
Investors have to understand that risk is a part of the investment process.
Every mutual fund will have some element of risk present in it,
The risk element can be high or low depending on the nature of the fund.
Mutual funds also do not guarantee any return.
Investors should always ask what is the kind of risk that they will face in a mutual fund.
An investor gives their money to the mutual fund to manage.
The mutual fund then invests the money in a specific area or asset.
The investor thus has an exposure to this area or asset as their money is invested in it.
The returns generated from here less expenses are the returns for the investor,
So the performance of the investors money depends on how the portfolio of the fund performs.