Are Mutual Funds Safe? What Is the Risk of Investing In a Mutual Fund?


Is it safe to invest in mutual funds? This is a common query that people have pertaining to these types of investments products. Traditionally, Indian investors have always preferred guaranteed or fixed returns along with adequate safety of their invested capital. This is a major reason behind the overwhelming popularity of investment options like recurring deposits and fixed deposits (FDs) among others. These are investments which can also be done through post offices and banks which are always perceived as the safest places for deploying investments. 

Can we get lost in mutual funds? This is a common fear behind the anxiety relating to mutual fund investments in the past, particularly since not many mutual fund firms/companies are well known as far as investors are concerned. Funds have also been impacted owing to fraudulent schemes promising a quick buck and chit fund schemes that have robbed people of their hard-earned money while offering unbelievable returns. These are the reasons why people perceive mutual funds as unsafe. However, this is not true at all. 

Should I invest in mutual funds? 

You have to understand the answer to a prevailing question as to why people invest in mutual funds. Safety can be worked out via two methods when it comes to your investments. Firstly, security is assessed in terms of the institution/company where you are investing and how likely they are to rob you of the invested capital. Secondly, it equates to fixed returns and offering protection of capital. No investment is truly 100% free from risks although there are several mutual fund schemes which have performed well in the past and promise a relatively safe mode of compounding and growing wealth for the future. 

These include the likes of the HDFC balanced advantage fund and several other such options highlighted by experts in recent times. If you are anxious about any mutual fund agency/house/firm running away with your deployed capital, you should be assured that investments made are totally safe. You will not have to suddenly wake up to a reality where the fund house has run away with your hard-earned capital. This is one scenario that will never happen, not at least if you invest with a reputed fund house. Another thing that should assure you is the fact that all mutual fund firms are regulated and monitored by leading agencies like AMFI (Association of Mutual Funds in India) and SEBI (Securities and Exchange Board of India). No fund house can run away with the money of investors and licenses for running these companies are sanctioned after a lot of due diligence, similar to offering banking licenses to financial institutions. From this perspective, mutual funds offer the same safety as Indian banks. No one is going to flee with your money by all means. 

Additionally, when you invest in suitable mutual funds like the UTI nifty index fund or others, you get returns that are more tax-efficient and higher in comparison to several conventional modes of investments. Mutual funds do not guarantee any returns of a fixed nature or protection of capital. Yet, this is actually a positive aspect since they would not be good investment options if such guarantees were given. The whole point of investing in mutual fund schemes is earning better returns than what you will get from conventional options available in the market. The returns arise from more comprehensive exposure to the market and professional management of these funds by skilled professionals/experts. This is all available to you with a nominal initial investment of capital through SIPs (systematic investment plans). Thereby you can just invest small amounts every month in order to grow sizable wealth for the future. 

Some other aspects worth noting 

Mutual funds will be more efficient than conventional investment options with regard to taxation. Long-term and short-term gains arising from mutual fund investments are taxed in a manner which does not eat hugely into the returns that you obtain. These funds are more logical for long-term investing since the longer you hold onto your investments, the higher gains you earn owing to the power of compounding. This is where your returns are reinvested for earning even higher returns. Over longer durations, mutual funds have historically offered superior returns that have surpassed conventional investment channels with ease while also surpassing inflation. The risks that arise from these investments can be spread out and better managed through diversification of the same. 

Mutual funds thus are safe products to invest in. As an investor, you should not be overly anxious or worried about fluctuations in the short term on your returns. Choose a suitable fund for investing, something which is absolutely in coordination with your financial and investment objectives and have a long-term horizon for your investment journey as well. With time and patience on your part, mutual fund investments can actually be quite rewarding. Of course, before making any investment, make sure to carefully read more about available mutual funds and do your homework on the fund you are investing in and its performance over the years. Diverse mutual funds will generate varying returns on the basis of several macroeconomic factors, market performance and historical graphs over a sustained duration. Invest small amounts through SIPs (systematic investment plans) and watch your corpus grow handsomely for the future. The biggest advantage is that you have a chance to beat inflation which is rising sharply in the current scenario. 

Author Bio: Bryony Jones is a vivid content writer and loves to write about education related content. For more information you can check her blog at

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