Market risk: The best thing for your investments

March 24, 2016 . Noorain Mohammed Nadim

“Mutual fund investments are subject to market risks. Please read the scheme information document carefully before investing.”

• Have you ever climbed a mountain, sky-dived, or scuba-dived into the ocean?
• Have you ever spoken before a group of people, driven a vehicle of any sort, or tried to learn a new skill?
• Have you ever spoken to a stranger, made friends, or fallen in love?

If you’ve said ‘yes’ to any or all of the options in the questions above, then you risk-loving junkie, you!

risk_fiLife is all about risks, isn’t it? Every single day we step out of the house with a mission to accomplish a set number of things. Yet, we absolutely wield little or no control on the accomplishment of all of these tasks. More times than not, things may go in our favour; but sometimes, it may not. We may be the most efficient of people; yet, when the universe conspires, it conspires.

So, what do we do? We pick ourselves up, dust our hands, and off we go again. Why? Because being alive and doing what you’ve got to do (no matter what it is) is synonymous with risk. When you have no control over the outcome of everything that happens in your life, you are exposed to risk. When life is all about risk, and undertaking risk, big or small, makes us happy, then why do we shy away from risk when it comes to investments?

“Mutual fund investments are subject to market risks. Please read the scheme information document carefully before investing.”

How many times have you heard / seen this line blaring / glaring out of advertisements? Whenever you do, do you feel your antennas of caution going up?

Disclaimers are the best things that can happen to mutual funds because you, the investor, know exactly what you are getting into. You get to hear / see it as it is.

Moreover, market risk can be the best thing that can happen to your investments because risk doesn’t always mean something bad. It can also mean something good, really good, unprecedented good. How? Well, because it’s risk with the right precautions.

It’s something we know about, don’t we? That’s why we wear a seat belt / helmet while driving, we ensure we have a parachute attached to us when we sky-dive, and oh, we insure our lives. Investing in mutual funds is something like this too.

• Mutual funds are closely monitored by the Securities and Exchange Board of India (SEBI)

• AMCs are required to maintain absolute transparency with investors by releasing monthly reports about the NAV of the fund, the make-up of its entire portfolio, its performance across different time periods as well as the performance of its benchmark, its expense ratio and much more (this makes mutual funds one of the most transparent and reliable investment instruments ever)

• A mutual fund invests in a basket of shares or debt instruments, and not just a single stock. Thus, your risk is diffused

• You don’t have to worry over the ups and downs of the market with efficient methods of investing such as a Systematic Investment Plan (SIP)

“Mutual fund investments are subject to market risks. Please read the scheme information document carefully before investing.”

Market risks are one of the best things to have ever happened to mutual funds. Here’s a fun fact that tells you exactly why:

FDs have delivered 6.5 per cent annually in the past 15 years, while large-cap equity mutual funds delivered an average annual return of 15.6 per cent in the past 15 years.

So, market risk is good, isn’t it?

Disclaimer: Taxes at the highest tax bracket have been factored in while arriving at the returns figures.

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