InvestorQ : What are the risks of an investment in shares and Mutual funds?
natasha Samani made post

What are the risks of an investment in shares and Mutual funds?

shivangi Arora answered.
2 years ago
Risk arises in mutual funds because mutual funds invest in a variety of financial instruments like equity, corporate bonds, debt, etc and the prices of these instruments keep fluctuating due to several factors such as interest rate fluctuation, demand-supply, etc. These are the risks associated with mutual funds:

1) Interest Rate Risk: Interest rate changes depending upon the credit available with lenders and the demand from borrowers. They are inversely related to each other. An increase in the interest rates during the investment period may result in a reduction in the price of securities.

2) Market Risk: This is the risk that stocks may perform poor due to poor performance of the market. This risk can neither be predicted nor be controlled.

3) Concentration Risk: Concentration means investing all your money in one place. However, this will increase the risk substantially. So, it is always better to diversify the portfolio.

4) Liquidity Risk: This is the risk that is associated with the redemption of securities without incurring a loss in the value of an investment. Sometimes a seller may not find a buyer for such instruments.

5) Credit Risk: This is the risk associated with the payment of fixed interest that was promised by the issuer might not be paid.

Investing in shares, like any investment, comes with a certain amount of risk. Shares are often described as 'high-risk asset classes' when compared with other types of investments. The primary risk of investing in shares is that it can result in a loss of capital. Unexpected events outside of your control or negative developments within the company can significantly affect share prices and the value of your portfolio.