Investing procedure in mutual funds is easy, however, the risks are lower when compared to equity investment, below are few risks involved in mutual funds:
- Mutual funds are invested directly by investors, a simple procedure involved and the investments are diversified, this creates a risk of management with multiple platforms.
- As long as the economy is doing good that would reflect in the stock prices and that would reflect in your Net Asset Value (NAV). It is mandated to be aware of day to day market status.
- The major risk is liquidity risk. Depending on the nature of the fund that you are investing in you will face liquidity risk. When you invested in a small-cap fund the liquidity is going to be an issue and there is also a risk of volatility. However, this risk is lesser when compared to Large-cap stocks.
- The value of its investments decline because of unavoidable risks that affect the entire market
- The fund can’t sell an investment that’s declining in value because there are no buyers.
- If a bond issuer can’t repay a bond, it may end up being a worthless investment.
- The value of fixed income securities generally falls when interest rates rise.
- The value of foreign investment declines because of political changes or instability in the country where the investment was issued.
- If the other currency declines against the Canadian dollar, the investment will lose value.
- One way to assess a fund’s level of risk is to look at how much its returns change from year to year. If the fund’s returns vary a lot, it may be considered a higher risk because its performance can change quickly in either direction.
- As we know that stocks prices are always sensitive to what is happening in economies, be it the local economy, be it international economies, how is the currency doing, what is happening to the interest rate, where is the inflation, how are the companies performing, all these factors have an impact on the stock prices.
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