When you invest in mutual funds, your risk gets distributed. Even if the shares of one or two of the companies from the mutual fund aren’t performing well, the other shares and debentures that are doing well can balance out the overall portfolio.
Another aspect that renders mutual fund investments safer than direct equity investments is the presence of expert fund managers who handle each mutual fund. These fund managers ensure that investors’ money is not invested recklessly in shares of companies that have a likelihood of going bust. Fund managers also ensure that investors’ money is proportionally invested in various instruments within the mutual fund.
Are Mutual Funds Safe for Investment?
Of course, like every other investment instrument, mutual fund investments are subject to risks. However, these risks should not deter you from investing in mutual funds.
i) The first risk people are often worried about is that their capital is not protected, and returns are not guaranteed.
While this is true, over the years, long term investments in mutual funds have given unexpectedly high returns to investors that far outdo the going inflation rates. The risks of market volatility are usually greatly minimized, or almost nullified by investing for the long run. This risk can also be mitigated by investing in various different mutual funds, so your money is distributed across very different baskets.
ii) The second possible risk that you may be worried about is that of a mutual fund company disappearing with your invested money. The Securities and Exchange Board of India (SEBI) specifically monitors all activities of mutual fund companies, making this almost impossible to do. Also, licenses to start mutual funds are given out to companies after very stringent due diligence.
Mutual funds can be classified into Low Risk, Medium Risk, and High Risk based on many factors. Comprehensive mutual fund investment apps like Tarrakki show you the risk level of each mutual fund based on standardized risk classifications.
The Tarrakki App gives you a free Risk Profiling option which analyses how much risk you should take based on a simple questionnaire.
Safe Investment in Mutual Funds with Tarrakki
Use the Tarrakki Risk Profiling Questionnaire to really understand what risk profile you fall into, based on your age-group, income, risk appetite, and the number of dependents on you.
Follow this up by intelligently investing in mutual funds is safe that fall within your risk bracket.
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