1. Market Risk
This is the most common risk. The value of your mutual fund units can go up or down depending on movements in the stock market, bond market, or other underlying assets.
Example: If the stock market falls due to global tensions or economic slowdown, equity mutual funds may also see a drop in value.
2. Credit Risk
This applies mostly to debt mutual funds. It refers to the possibility that the bond issuer (like a company or government) may fail to repay the interest or principal on time.
Example: If a debt mutual fund holds bonds of a company that defaults, the fund’s value can decline.
3. Interest Rate Risk
When interest rates rise, the value of existing bonds tends to fall — which can affect debt mutual funds.
Example: If RBI increases interest rates, long-term bond funds may see short-term negative returns.
4. Liquidity Risk
This happens when the fund finds it difficult to sell certain assets and meet withdrawal requests.
Example: If many investors want to redeem their money at once, and the fund holds assets that can’t be sold quickly, it may delay payouts or impact the NAV.
5. Inflation Risk
If your mutual fund returns are lower than the inflation rate, the real value of your money goes down over time.
Example: If your fund gives 5% returns and inflation is 6%, your purchasing power decreases.
6. Concentration Risk
If a mutual fund invests too heavily in a particular sector, company, or theme, it may carry higher risk if that segment underperforms.
Example: A fund focused only on tech companies may be more affected if the tech sector faces a downturn.
7. Fund Manager Risk
Every mutual fund is managed by a fund manager whose strategy and decisions influence performance. A wrong call or frequent changes in fund management can affect returns.
8. Exit Load & Taxation Impact
Redeeming your mutual fund before a certain period may attract an exit load. Also, returns are subject to capital gains tax, depending on how long you hold your investment.