The Risks of Investing in Mutual Fund
Investing in Mutual Funds is prone to the following risks:
- Decrease in NAV
The risk of a decrease in NAV stems from a decrease in the prices of assets of a mutual fund portfolio. Below are several of the factors contributing to a decrease in the prices of a mutual fund portfolio:
- Underperformance of listed companies
- National and global economic conditions, such as higher inflation rates, an increase in benchmark interest rates and current account deficits.
- Unconducive political stability
- Social conditions, such as natural disasters and social unrest
The risk of a default stems from the failure of a party in a mutual fund transaction to meet the legal obligation to another party as stipulated in the contract, resulting in the loss of investment value. To prevent this from happening, seek as much information as you can about the investment manager and custodian banks managing your mutual fund product.
The risk of liquidity stems from the failure of a fund manager to deliver your investment redemption. Non-liquid assets or securities in a mutual fund portfolio would make it difficult for an investment manager to sell them, which may result in delayed payment of redemption to investors. Moreover, in the event of a force majeure, the redemption of investment units of a mutual fund product is subject to a temporary suspension.