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Risks in Investments

It is not only mutual funds, but most savings and investments through financial and real assets carry risks which could lead to losses for investors.

Last week, Indias largest bank cut the rate of interest on savings deposits to 3.5% from 4%. Other banks followed. For over six years interest rate on SB deposits was at 4% or above. The decision was based on two market factors: Low inflation and high real interest rate. This sent shock waves among investors. This cut in SB deposit rate is another example that it is not only mutual funds, even the safest of the deposits carry market risks. Prices of stocks, bonds, gold, silver, real estate, commodities fluctuate on a daily basis. So naturally mutual funds which invest in some of these assets also witness fluctuations in their NAVs on a daily basis. The risks in mutual funds are risks derived from actual risks which are inherent in assets they buy in the portfolio. Savings banks, fixed deposits, recurring deposits also carry market risks. In India, each of these accounts is insured for up to Rs 1 lakh. So if you have Rs 2 lakh in a bank account (SB, FD or RD and the bank is unable to pay, there is a guarantee that you will get half of the money in that account. But the balance half, you may get or it may be lost forever. In effect each SB, FD and RD account of above Rs 1 lakh also carries market risks. 

August 2017
Delhi-India