Key ways to reduce mutual fund investment risk

In this episode of, ‘Mutual Fund Corner’, Kaustubh Belapurkar, Director of Fund Research at Morningstar Investment Adviser India Private Limited discussed about risks that all investors face while they invest in mutual funds. Belapurkar emphasized that mutual funds are not guaranteed or assured-return products, as they invest in market-linked instruments and are susceptible to different types of risks which can affect their price.

He advised that people should invest according to their own risk-return objectives, investment time horizon, and risk-taking ability.

When it comes to asset allocation, Belapurkar emphasized the importance of focusing on the right time horizon and investing regularly. He noted that market risk is elevated when investing for the short term, and that near-term risks such as a slowdown in growth, the Russia-Ukraine war, and interest rates can also affect mutual fund performance.

In order to mitigate these market risks, Belapurkar recommended that investors should buy funds that match their risk-return objectives and investment time horizon.

He said, “The beauty of market risk is that, especially in an asset class, such as equities, if you have the right time horizon, and you invest regularly, while you can’t do away with it completely, you can definitely lessen the impact of that on your portfolio. While in the short term, it might play out, and it has, like, in recent times, but nothing stops you from investing in a great asset class like equities even though market risk will continue to exist.”