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7 Ways to Protect Yourself from Risks Involved In Mutual Fund Investments

A little patience with your investments goes a long way.

Anshika Bajpai |

Updated:July 3, 2019, 6:28 PM IST
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7 Ways to Protect Yourself from Risks Involved In Mutual Fund Investments
Image for representation only.

While mutual funds are one of the safest options of investing your money, there is still a certain amount of risk involved in every kind of investment. But there are a few strategies that you can follow to make sure any kind of fraud or financial crisis does not get the better of you.

1) When it comes to protecting your mutual funds from market volatility, opt for government-issued bonds rather than corporate bonds. Even if the market goes for a toss, it is unlikely that the government will go bankrupt and default on its bondholders.

2) To limit your risk in a volatile market, you can invest in highly rated foreign corporate funds. Make sure to invest in a stable, well-governed foreign corporation to gain maximum value out of it.

3) While leverage is an excellent way that allows funds to generate more than normal profits, it also increases the risk for the investor. So if you want to steer clear of risk then avoid leverage and other debt-fueled mutual funds.

4) Money market funds are generally considered to be the safest of the lot since these funds invest in ultra-short-term debt issued by governments or very highly rated corporations. This ensures that the risk attached to them is relatively low. Of course, low-risk investments generate lower profits so it’s not for people who are looking for some serious wealth generation. But it’s a good option for people who can’t afford to take much risk.

5) Consider non-cyclical funds for investment. Reducing risk does not necessarily mean avoiding the stock market altogether. Although it is considered to be the riskiest place to put your funds in, non-cyclical funds remain relatively stable during a bear market because the company deals in goods and services that people need despite the condition of the economy. Take the utility sector for example, people will need electricity, gas and water no matter what. Even alcohol and tobacco industries remain stable most of the times since consumers are ready to spend money on them even if the funds are tight.

6) This one’s a no-brainer. To reduce your risk, diversification is the best option. Mutual Funds anyway provide a significant degree of diversification and you can further protect your investments by diversifying it even more and investing in different types of mutual funds.

7) A little patience with your investments goes a long way. One of the main reasons people lose so much money during a financial crisis is because they panic and liquidate their investments at once, creating more strain on the economy. But then there are some who wait and get through with it and those are the ones who recover their money eventually. So go ahead and invest for the long term to get maximum profit.

To know more, click here.

This content has been created in association with YONO SBI.

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