Groww Digest

6 Day Course

Theme: mutual funds' risk levels

Nov 7 to Nov 13, 2022

6 Day Course is a part of our newsletter

series, Groww Digest - all things personal
finance.

Want to get Groww Digest in your email?

Click here: Get Groww Digest

Day 1: Monday
6 Day Course | Theme: mutual funds' risk levels

Different mutual funds are said to have

different levels of risk. Let’s discuss those
today.

Overnight funds and liquid funds.

These two categories of mutual funds are the

absolute lowest-risk mutual funds.

They are so low risk, many people store

money in them instead of keeping money in a
savings bank account.

The flip side of this low-risk nature is that their

returns are very low — usually similar to FDs
or even slightly lower.

Investors use these mutual funds to store

money for emergencies or for extremely short
durations.

Page: 2
Day 2: Tuesday
6 Day Course | Theme: mutual funds' risk levels

Ultra short-duration funds, low-duration

funds, short-duration funds.

These are debt funds — they invest in bonds

and fixed-income securities.

In terms of risk, they’re deemed to be riskier

than liquid funds — but less risky than equity
funds (mutual funds that invest in stocks).

Their returns are similar to or better than

bank FD returns.

When compared to FDs, their risk is also

similar to or slightly higher than FDs.

In more recent times though, most mutual

funds belonging to these categories have
given returns that are lower than expected —
actually similar to liquid funds in many cases.

Page: 3
Day 3: Wednesday
6 Day Course | Theme: mutual funds' risk levels

Let’s talk about equity mutual funds now.

Index funds and large cap funds.

These are deemed to be the least risky equity

mutual funds. Mind you, they are the least
risky equity mutual funds. They’re still riskier
than most debt funds.

Their returns are usually much higher than

most debt funds.

Multi-cap funds, flexi-cap funds, large & mid

cap funds, tax saver funds (ELSS).

These are slightly riskier than large cap funds

and have often given slightly higher returns
too.

Page: 4
Day 4: Thursday
6 Day Course | Theme: mutual funds' risk levels

Going further, we have mid-cap funds and

small-cap funds.

These categories are even riskier than large &

mid, and flexi-cap funds.

They have a history of giving higher returns

than flexi-cap funds — but they are very
volatile.

Sectoral funds. These funds invest in stocks of

a particular industry or theme. Example:
pharma sector funds or auto sector funds.

This is one of the highest risk mutual funds

available to investors.

Their returns vary from sector to sector and

time to time.

Page: 5
Day 5: Friday
6 Day Course | Theme: mutual funds' risk levels

Beyond debt funds and equity funds, we have

balanced funds. These invest in both equity
and debt instruments.

There are a few kinds of balanced funds. The

risk and return potential of these funds is
usually somewhere in between pure equity
and pure debt funds.

We have covered the mutual funds that are

most commonly invested in. There are many
other types of mutual funds.

Please remember, risk is very hard to quantify

or put a number on.

Please understand the risks involved in each

kind of fund just as well as you research past
returns of funds.

Page: 6
Day 6: Sunday
6 Day Course | Theme: mutual funds' risk levels

We’ve reached the end of this week’s course

that started on Monday.

Here’s a test you should take. Get pen and

paper!

Question 1:
Debt funds are:

-Lower risk than equity funds

-Higher risk than equity funds

Question 2:
Large-cap funds are:

-Lower risk than liquid funds

-Higher risk than liquid funds

Page: 7
Day 6: Sunday
6 Day Course | Theme: mutual funds' risk levels

Question 3:
Compared to mid-cap funds, sectoral funds are:

-Low risk
-High risk

Question 4:
Liquid funds are deemed to be lower risk than
FD.

-True
-False

Question 5:
Balanced funds are riskier than debt funds.

-True
-False

Page: 8
Day 6: Sunday
6 Day Course | Theme: mutual funds' risk levels

Answers:

Q1: Lower risk than equity funds;

Q2: Higher risk than liquid funds;
Q3: High risk;
Q4: True;
Q5: True.

Page: 9
 That’s it for this week!

Want to get Groww Digest in your email?

Click here: Get Groww Digest

See you next week!

—Groww Digest Team

Page: 10