How to identify risks in mutual fund investing

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Mutual fund inflows have soared recently. A lot of the investors exposing themselves to mutual funds often skip considering the risks involved. Money9 Helpline hosted Complete Circle Consultants’ co-founder, Gurmeet Chadha to resolve all your queries related to mutual funds and the risks associated with them.

Edited excerpts:

Arun Singh: What are the parameters to look for, which helps to evaluate risk factors in a mutual fund for investment horizon for 30+ years and how often should we cross-check those parameters?

Chadha: First of all keeping 30 years horizon is a very good step for your investment journey. You can look at 3-4 things here. You should check how consistently is the fund generating alpha i.e excess returns from the benchmarks. Secondly, the fund should not be very volatile. Check the sharp ratio it gives you an idea of how much risk you can take for excess returns. Thirdly review your portfolio very carefully and minutely. Give a fund a minimum of three to four years.

Subhabrata Choudhary: I have both the UTI Nifty index and Axis Bluechip in my portfolio. I have added both funds in SIP mode from November 2019 with the same amount. Can you pick which one should I continue?

Chadha: I would suggest you continue in both the funds. You can also add one or two more funds, a Flexi cap or a multicap fund. If your horizon is for 10 or more years then you can also add a mid or smallcap fund. This will complete your portfolio and cover a wider market space.