Market Risks In Mutual Funds

Market Risks In Mutual Funds

Like any other investments, mutual funds to are subject to systematic or market risk. This happens as there is no way one can predict what is going to happen in future or if a particular asset will decrease or increase in value. As the market conditions cannot be predicted accurately or controlled completely by anyone, no investment comes risk-free. Other than investment or trading, if you are looking for earning money through online sources then you can take a look at the full review of the different opportunities that are available online to make money easily.

Market risk- Explained

Market risks are the risks that are inherent in all kinds of investments which is the result of the market’s fickle nature.  Market risk is the possibility that the economy or market will decline and causes the investments to lose its value regardless of profitability or performance of issuing entity. For instance, when the stock market crashes, nearly all the stocks lose its value despite the organizations doing nothing wrong. The result could not have been prevented or predicted by the company.

Types of market risks

There are different types of market and they are a credit risk, inflation risk, socio-political risk, country risk, and equity risk.

Credit risk- This risk arises when one of the parties make a default in payment. Credit risk refers to the situation when two parties agree to a contract and at the time of honoring the contract when one of the parties holds back from honoring the commitment.

Inflation risk- The gradual inflation which will result in eroding the dollar value and ultimately reduces the long-term investments value is known as inflation risk. These risks are an issue primarily for the money market funds as their returns are so low that the inflation can easily pull down the return value.

Sociopolitical risk- This risk refers to the possibility that an outbreak of war, political elections or act of terrorism can create a negative impact on the market in general.

Country risk- This risk too refers to the same phenomenon as a sociopolitical risk but only applies to those events which create an impact in investments made in foreign countries.

Equity risk- This risk applies to the investment in stock market and it refers to the risk that is associated with price changes in the stock market which may pull down the price value of the asset when the holder wishes to sell.