question 5 of 10 why are mutual funds considered a high-risk form of investment? a. they rely on risky practices such as investing | Question AI (2024)

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Question 5 of 10 why are mutual funds considered a high-risk form of investment? a. they rely on risky practices such as investing | Question AI? ›

Explanation. Mutual funds are considered a high-risk form of investment primarily because they involve buying stocks, bonds, or other securities that have unpredictable values.

While mutual funds offer potential benefits, investors also face risks like market fluctuations. Market risk is a primary concern as the value of securities can go up or down based on changes in market conditions. A poorly performing sector or bad fund management could result in substantial losses.

While mutual funds offer the potential for high returns, they also come with a higher level of risk compared to other options. Here are a few reasons why mutual funds are considered more risky: 1. Market Volatility: Mutual funds are subject to market fluctuations.

They are suitable for aggressive investors with investment horizons of 5-10 years or more. Also, sector-specific and thematic mutual funds are also considered quite risky because of their concentration in specific industries or themes, making them susceptible to market fluctuations and sector-specific challenges.

In summary, hedge funds are considered high-risk because they rely on risky practices such as investing borrowed money, engage in aggressive investment strategies, and have high entry requirements.

Mutual funds are a lucrative investment option for investors looking for tax-efficient returns that are typically higher than alternatives such as fixed deposits. Although mutual funds are generally considered a reliable investment, there are high-risk and low-risk categories within it as well.

High-risk investments typically offer lower levels of liquidity than mainstream investments, so, particularly if something's gone wrong and performance hasn't met expectations, getting access to your money when you want may not be as easy.

Risk reduction: Mutual funds invest your money into a diversified investment portfolio of shares, bonds and securities. Owing to professional management and diversification, mutual funds have low investment risk.

Mutual funds are generally considered a safer investment than stocks because they offer built-in diversification—something that helps mitigate the risk and volatility in your portfolio.

Why are mutual funds subject to market risk? ›

Like all securities, mutual funds are subject to market, or systematic, risk. This is because there is no way to predict what will happen in the future or whether a given asset will increase or decrease in value. Because the market cannot be accurately predicted or completely controlled, no investment is risk-free.

What Is Downside Risk? Downside risk is an estimation of a security's potential loss in value if market conditions precipitate a decline in that security's price. Depending on the measure used, downside risk explains a worst-case scenario for an investment and indicates how much the investor stands to lose.

Risk: Bonds, especially government and reputable corporate bonds, are often perceived as less risky than equities. Their returns are usually fixed and predictable. Mutual funds, especially equity-oriented ones, can be more volatile, with returns subject to market fluctuations.

Explanation. Mutual funds are considered a high-risk form of investment primarily because they involve buying stocks, bonds, or other securities that have unpredictable values.

The risk of fraud is more prevalent in the hedge fund industry compared to mutual funds, due to the lack of regulation for the former. Hedge funds do not face the same stringent reporting standards as other funds, and therefore the risk of unethical behavior on the part of the fund and its employees is heightened.

But there are no guarantees of profits when you buy stock, which makes stock one of the most risky investments. If a company doesn't do well or falls out of favor with investors, its stock can fall in price, and investors could lose money.

But there are no guarantees of profits when you buy stock, which makes stock one of the most risky investments. If a company doesn't do well or falls out of favor with investors, its stock can fall in price, and investors could lose money.

Because a mutual fund buys and sells large amounts of securities at a time, its transaction costs are typically lower than what you would pay as an individual investor.