Risk is an inherent aspect of every form of investment. For Mutual Fund investments, risks could include variability, or period-by-period fluctuations in total return.
Let us spend some time to understand better, the risks associated with a regular Mutual Fund Investment:
Market Risk: At times, the prices or yields of all the securities in a particular market rise or fall due to broad outside influences. This change in price is due to what we know as 'Market Risk'.
Inflation Risk: Inflation Risk is sometimes referred to as 'loss of purchasing power'. Whenever the rate of inflation exceeds the earnings on your investment, you run the risk of buying less and not more.
Credit Risk: This risk implies in short, about the stability of the company or entity to which you lend your money when you invest. It also questions the certainty that it will be able to pay the interest you are promised, or even repay the principal when your investment matures.
Interest Rate Risk: Interest rate movements in the Indian debt markets can be volatile. This leads to the possibility of large price movements up or down in debt and money market securities resulting in possibly large movements in the NAV.