Is there a risk involved?
Undoubtedly, mutual funds also come with risks just like any other type of investment. The possibility of losing money is inevitable as the value of investments fluctuates. Nonetheless, when compared with other kinds of investments, mutual funds can be considered as a safer investment because short-term price changes do not significantly affect investments holding plenty of company stocks.
However, overall risk can be minimized and avoided by taking necessary precautions before diving into investments. One way is to hold a variety of funds (diversification) and also to figure out first which mutual funds complement the other investments you currently handle.
What's "diversification" and how does it help reduce risk in my investments?
Mutual funds diversification is a funding strategy where investors allocate investments across different industries, financial instruments, and other factors. By utilizing this approach, returns are maximized through risk reduction by investing in various areas that behave and respond differently to the same scenario.
Through portfolio diversification, it allows investors to lessen the risk of focusing on a single sector or stock by broadening its reach and potential rewards through entering various sectors. Volatility reduction is the key factor that lowers the overall risk which is why fund diversification has always been considered a critical aspect of investing in capital markets.
What is the maturity period of my funds?
Mutual Funds do not have a maturity period. It is a very liquid investment where you can easily invest and redeem just in a matter of days.