Are mutual fund investments risk free?

Investment

oi-Sunil

By Sunil Fernandes

Published: Monday, October 13, 2014, 13:36 [IST]

For those that have been investing in mutual funds or have been buying and selling shares, the risk associated with mutual funds may be well known.

But for the uninitiated, its important to remember that mutual fund investments are risky. Of course, the risk also depends on the kind of investment that you have made.

Which mutual fund instruments are risk free?

To some extent debt funds are relatively less risky. Gilt Funds on the other hand are completely risk free, as the mutual fund scheme invests the money in only government securities. Debt funds that also invest in highly rated securities can also be considered as safe. Investors who are risk averse tend to invest their money in these set of instruments.

Are equity mutual fund schemes risk free?

Most certainly they are not. Equity Mutual Fund schemes park most of their money in shares and stocks, which is why they are risky, simply because share investments are risky. But, if you look at the last 5 year returns of equity mutual fund schemes in India, most have rallied on the back of strong performance in India.

In fact, schemes like Axis Equity Fund, ICICI Prudential Target Returns Fund and several others have given returns of almost 20 per cent in the last three years. Having said that there is no way to determine whether you would continue to get similar returns in the future. Equity mutual fund schemes are risky and investors should note that before investing.

Conclusion

It's almost impossible to say whether you should invest in equity mutual fund instruments or debt dedicated instruments. If you are a young individual you can take risk by placing money in equity mutual fund schemes. On the other hand if you are a risk averse investor, who is close to retiring, it's best to place money in debt mutual funds.

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