Relation of Mutual Fund with Stock Market: “Mutual Fund investments are subject to market risk. Please read the offer document carefully before investing” – We are all well aware of this disclaimer.
When investors are encouraged to invest in Mutual Funds through any medium (electronic, print, digital) then this disclaimer is definitely there.
What is Main Difference Mutual Fund with Stock Market?
In fact, this disclaimer is a statutory warning to the investors or the general public that there is no guarantee of return on their investment as mutual funds also work on the fluctuations of the stock market and some degree of risk is always associated with each fund.
Mutual Fund with Stock Market
There cannot be a mutual fund without the stock market. Because mutual funds managers give returns to investors by investing 95 percent of the amount in the stock market itself. So both are with each other. If there is a fall in the stock market, then the effect on the returns of those who invest in funds is clearly visible. Similarly, if there is a boom, then the money also grows at a fast pace.
What is Market Risk?
Market risk or market risk depends on interest rate changes, currency fluctuations, commodity price fluctuations (like crude oil, precious metals, etc.), geopolitical risk.
All these factors affect the performance of individual stocks, which in turn affects the performance of the underlying mutual funds as the money raised by mutual funds from the public is invested in the stock market itself.
Let us tell you, if the price of crude oil is rising, then there will be an impact on the profit of companies using crude oil as a raw material, which will reduce its performance and will also increase the chances of its market value going down.
How are Mutual Funds subject to Market Risk?
Mutual Funds are subject to market risk because through this the fund manager invests in various financial schemes such as equity, debt, corporate bonds, where many factors can affect its performance, the main one being market volatility.
The Net Asset Value (NAV) of an individual decreases due to price fluctuations or volatility, which can result in loss.
Let us tell you, NAV is the market value of the securities based on the scheme. The money collected by mutual funds from investors is invested in the stock market, where the market price changes every day, so the NAV of any mutual fund scheme also varies from day to day.
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