Like any investment, mutual funds in India come with risks. While they offer diversification and professional management, their returns are not guaranteed, and investors need to understand the different types of risks before investing.
The main risks you should know -
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Market Risk – Equity funds rise and fall with the stock market. Factors like government policy, interest rates, or economic events can cause losses, even to your principal.
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Interest Rate Risk – In debt funds, when the RBI raises rates, the value of existing bonds falls, pulling down the NAV.
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Credit Risk – If a company or bond issuer defaults on payments, funds holding those bonds may suffer losses.
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Liquidity Risk – Sometimes, especially in volatile markets or close-ended schemes, it may be difficult to sell units quickly at a fair price.
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Concentration Risk – Investing too heavily in one sector, theme, or company makes the fund more vulnerable to a downturn in that area.
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Inflation Risk – If returns don’t keep pace with inflation, especially in debt funds, your money’s purchasing power reduces.
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Currency Risk – Global or international funds can lose value if the rupee weakens or strengthens against foreign currencies.
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Operational/Settlement Risk – Delays, system errors, or NAV miscalculations can occasionally impact transactions.
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Fund Manager Risk – A fund’s performance depends heavily on the manager’s skills. Poor decisions can drag down returns.
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Tracking Error Risk – In index funds or ETFs, actual returns may slightly differ from the benchmark index due to operational problems within the AMC.
How India protects investors?
SEBI regulations ensure strict disclosure and transparency.
Every scheme shows a Riskometer, ranging from low to very high, so you know the risk level before investing.
AMFI oversight adds another layer of industry discipline and ethical practice.
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