Mutual funds carry a certain pedigree of risks as they make an investment in equity or debt markets. In an investment form they provide numerous benefits to an investor who lacks on the technical skills aspect. The major benefit of a mutual fund is it can outscore a fixed deposit from the returns aspect.Though a FD could provide you with a stable return, whereas in case of a mutual fund considerable higher returns are assured in an equity or debt market. A point to consider with direct mutual fund investment is risks could be many, but it outnumbers the benefits.
The moment you are planning to invest in a mutual fund the first thing you notice is the rating of the fund. A low rating means that lesser degree of risk is involved with such funds and it is more in the form of debt instruments. With high risk investment they carry vitality but do offer the highest return among all the existing instruments. The only way to cash in on mutual fund is to maintain a balance of your investment portfolio. It needs to be a mix and match of high and low risk investments.
How to cut down the risks while investing in mutual funds?
If you are of the opinion that you need to make an investment in mutual funds, but mitigated by risk factors, it is possible to cut down on risk aspects by adhering to the following
- Opt for low risk funds- making an investment in low risk funds are a viable way to cut down on the risk aspect. But these risks come at a price and it is returns. A lower risk provides you with lower investment.
- Risk profile evolves with time- a proper mannerism exists on how you can manage risks involved with such funds. When you are younger you can keep the risk profiles higher and once you get older reduce the risks.
- Opt for hybrid funds- the beauty of such funds is they offer a balance of debt and equity investments that cuts down on the scope of loses. This is achieved by spreading the investment portfolio across diverse platforms.
- Diversify your investments- if you feel burdened by the risks, a better suggestion is to diversify the investments. Invest some amount of money in mutual funds and the rest in other fund forms like equities or fixed deposits. This same strategy can be adopted with mutual funds as you can invest some money in low risk funds and others with high risk funds. This poses a significant benefit with high risk equity market and low risk debt market.
To sum it up is investment in mutual fund a safe option? Till date mutual funds have not gone to become an alarming investment source is because investors are worried about risks involved. Yes you cannot separate the risks associated with investing in mutual funds, the returns assured will outnumber the risks in a big way when you are catering to viable losses.