Risk in Mutual Fund and How to Avoid them?

A mutual fund provides different types of schemes which are known as Diversification. Due to the specialization of diversification, it reduces the risk largely. But, it does not completely eliminate the risk. It means that if you are investing in the equity market through a mutual fund, the risk associated with those markets still remain with the investment.
However, the management of mutual funds resides in the hands of experts and they reduce the risk of your investment. The task of mutual fund managers is to get you a better return from the market returns and if the market is going down, its portfolio cannot go down as much as the market, yet it cannot completely eliminate the market risk.

How to Avoid Risk of Mutual Fund?

• Avoid Risk by Diversification in Investment: If you are investing in the market then you can do diversification in many ways. Do not make all investment in one company and also do not invest in companies in the same field. Always invest in different companies having a different market cap for more diversification. Similarly, when you invest in a mutual fund always invest in different companies having a different market cap.
• Investment through SIP: By investing in SIP, you can greatly reduce the risk of your investment. Imagine an investor invested Rs.50000 in the market simultaneously. After this, the market fell for one year and the market fell 10%. Now his recommendation remains only 45,000. If this investment was done in the 5000 monthly SIP, then it would also get the benefit of falling prices and its investment does not decrease by 5000 but it is much lesser than that.
• Long term investment: Long-term investment also reduces the risk of investment in the stock market to a great extent. Invest in the market for a long time and expect good returns.