Wednesday, Nov 23, 2022
Finance

Know The Types Of Risk Involved in Mutual Fund Return Rate


After a historical bull run in equity markets, average mutual fund returns have moderated in recent years. Nevertheless, many investors are still interested in investing in mutual funds to grow their wealth. 

However, before investing in any mutual fund scheme, it is important to understand the types of risk involved in mutual fund schemes. In this article, we will provide an overview of the different types of risk involved in mutual fund schemes and how they can affect your investments. 

Please note that this is not an exhaustive list of all the risks involved in mutual funds, but it should give you a good starting point to help you make more informed investment decisions. There are several types of risk involved in mutual fund return rates which are discussed below in this article – 

  • The most common is market risk, which is the risk that the overall stock market will decline in value. This can impact the value of your mutual fund, even if the individual stocks within the fund are doing well. Market risk is the risk that the market will not perform as expected. This can happen for a variety of reasons, including changes in the economy, geopolitical events, or new technology. 
  • There is also the risk that a specific stock within the mutual fund will decline in value, even if the overall market is doing well. This is known as stock-specific risk. 
  • In addition, there is the risk that the mutual fund itself will underperform other similar funds. 
  • Finally, there is the risk that the fees associated with the mutual fund will eat into your returns.

All of these risks need to be considered when choosing a mutual fund, as they can all impact the return rate. There are various other types of risk associated with the return rate of mutual funds. 

  • The first type is systematic risk, which is the risk that is inherent to the entire market or economy. This type of risk can’t be diversified. 
  • The second type of risk is an unsystematic risk, which is specific to a particular company or sector. This type of risk can be diversified away by investing in a variety of different companies and sectors. 
  • The third type of risk is called Manager risk, which is the risk that is associated with the specific fund manager. This type of risk can be diversified away by investing in a variety of different managers.
  • Reinvestment risk is the risk that the mutual fund will not be able to reinvest your money at the same rate of return. This can happen if interest rates change or if the market conditions are not favourable.
  • Interest rate risk is the risk that the interest rates on mutual funds will change. This can cause the value of the fund to go up or down. 

When it comes to investing in mutual funds, there are a number of risks that you need to take into account. The level of risk you are willing to take on will often dictate the type of mutual fund you choose to invest in. 

The more the risk, the higher the potential return. But, there are different types of risk involved in mutual fund return rate that an investor should be aware of. Each type of risk has the potential to impact the return on investment (ROI) of a mutual fund. In conclusion, it is important to know the types of risk involved in average mutual fund return 2022 . Some risks, like market risk, are out of the control of the fund manager. However, other risks, like credit risk, can be managed by the fund manager. Close-ended mutual funds have several advantages, including the ability to manage credit risk and the ability to provide a predictable return.