Depending on the kinds of securities it is allowed to invest in, a mutual fund is subject to one or more of the following types of risk.
Market Risk
The risk that the valueof an investment will be adversely affected by the fluctuations in its market prices. These fluctuations may be the result of two other kinds of risk.
1. Unsystematic Risk - the variability in the stocks price due to factors associated with the company. This type of risk can be minimized through proper diversification.
2. Systematic Risk - the variability in price related to factors that affect the economy and the financial markets as a whole.
Sector Risk
The risk which affects stocks in a particular industry or sector sector. Market or economic factors affecting that industry sector, could have an effect on the value of a funds investments.
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