Investing in Mutual Fund can be risky depending on the the type of fund you are investing. Don't forget the famous sentence "Mutual fund investments are subject to market risks ... ". Such as investing is stock market will carry high risk and vastly depend on the market performance. If you are looking to invest in Gilt bonds, risk will be less. Also read 8 things to check before investing in mutual funds in India.
Risks involved in Mutual Fund Investing
The main risk involved in mutual fund is under performance of fund which you have invested in. Any changes in the economy or any news related to the company performance may hamper your NAV performance. Click to know whether investment in mutual fund are risk free.
Change in Price
Any sharp fall in the prices of the underlying shares/bonds can lead to a lower NAV. Know what is NAV?
In case of debt funds or Gilt funds, any change in interest rates can lead to lower NAV.
Liquidity Risks: The fund with declining NAV will be less liquid as there will be no buyers in the market.
If investing in debt funds or hybrid funds which invest mostly in bonds and other debt instruments. If bonds of a particular company and the same defaulting on repayment affecting the performance.
Any downgrades by the rating agencies cause lower prices and increase the changes of issuing company defaulting.
The other factor is high fees involved in mutual funds, if your fund is performing well and giving you high returns is fine or in case of moderate or negative returns it will hurt your pocket. Other charges involved here are entry load, asset management charges and exit loads.