Question

what are some of the risk about mutual fund or annuity and give the details of it as an investment instrument ?type please

Answer 1

Solution:-

Some of the common types of risks associated with mutual fund are discussed as follows:-

1. Country Risks:- It is the risk of decline in the value of mutual fund due to instability or political changes in the country.

2. Interest Rate Risk:- There is an invesrse relationship between value of bond and interest rate risk. Rise in the interest rate leads to decline in the value of investment.

3. Market Risks:- Markets generally experience some of the unavoidable or uncontrollable risks. These risk bring a negative change in the value of investment.

4. Currency RIsk:-Investments which are denominated in a currency other than home currency experience this type of risk. Therefore change in the value of one currency bring about changes in the other.

Types of Mutual Fund Instruments are:-

1. Money Market Funds:- These funds generally invest in short term securities like government bonds, securities, treasury bills, certificate of deposits. These are safer investment although return is comparatively low.

2. Fixed Income funds:- These funds invest in securities which carry fixed rate of return like governemnet bonds, or high yield corporate bonds.Money inflow is regular in this form of funds which is genrally in the form of interest.

3. Equity Funds:- These funds invest in stock and carry a high degree of risk. As the risk is greater therefore rate of return expected is very high.

4. Balanced funds:- These funds invest in a mix of equities and fixed income securities. The main objective is to balance the aim of acheiving higher return against the risk of loosing money.