Risk in Equity Funds But Worth Investing

Equity markets reflects the value in the real economy. but it comes with risk,below are few :

  • The real economy goes through cycles or waves. until 2008, the economy was booming. Then sudden change the year 2009 turned gloomy. after 2010 an economic recovery started.
  • In the long run, equity markets are backbone for real economy – but in the short run, markets can see sudden us or down, leading to spells of greed and fear
  • The returns from equity are not fixed or guaranteed.
    selection and monitoring of sectors and companies are important to equity fund investing

Portfolio Specific

Sector funds

The entire exposure is to a single sector. If that sector does poorly, then the scheme returns are seriously affected. So it is considered highest risk among the equity mutual funds

Diversified equity funds

Invested in multiple sectors and companies. Few sectors or companies perform poorly, other better performers can make up. Diversified equity funds are therefore less risky than sector funds.

Thematic funds

We can say it is a variation of sector funds. Here the investment is as per a theme, say infrastructure. Multiple sectors, such as power, transportation. Thus, a thematic fund tends to have wider exposure than a sector fund, but a narrower exposure than a diversified fund. so thematic funds are less risky than sector funds.

Mid cap funds

Invest in mid cap stocks, which are less liquid and less researched in the market, than the frontline stocks. Therefore, the liquidity risk is high in such portfolios. They become riskier during periods of economic turmoil These stocks see greater volatility in prices. Large cap stocks on the other hand represent companies with stable revenues. These stocks are highly liquid and these stocks are not as volatile as mid and small cap stocks.

Contra funds

That are contrary to the market. Contrarian investors are those who take positions against the prevailing market trends. In simple words, it’s a strategy where an investor buys stock which most others are selling and vice versa.

Dividend yield funds

Invest in shares whose prices fluctuate less, but offer attractive returns in the form of dividend.

Investment styles

Fund manager will also reflect on the risk of the portfolio. The risk of loss is also higher in such stocks. Such stocks feature lower volatility in price.

Portfolio Turnover

Portfolio turnover ratio is calculated as Value of Purchase and Sale of Securities during a period divided by the average size of net assets of the scheme during the period.

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